A Benchmark for Mortgage Lenders

Lending, Market Update

Doug Duncan

Douglas G. Duncan
Senior Vice President and Chief Economist, Fannie Mae


Benchmarking is a critical tool for obtaining insights. The Fannie Mae Mortgage Lender Sentiment Survey® (MLSS) — introduced in the first quarter of 2014 — provides exactly that: timely, robust benchmarks intended to help mortgage professionals better understand industry-wide trends and assess their own business practices. For example, if a lender saw a decline in profit margin or expects a near-term uptick in purchase mortgage originations, it’s natural to ask whether theirs is an isolated case or an industry-wide phenomenon.

The quarterly survey features two sections: tracking housing indicators and a special industry topic. The former asks the same questions every quarter to identify trends — including changes to and expectations for consumer mortgage demand, credit standards, mortgage execution, mortgage servicing rights execution, and lender profit margin. Each quarter the special topic section calls out specific industry opportunities and challenges. Historically, this section has covered lenders’ views and experiences with regulatory changes such as TRID, affordability challenges, and technology innovations.

Prior to the MLSS, there was no broad-based and future-focused attitudinal industry survey available to track the state of the mortgage business. Given our position in the market, we are well situated to do this research. The closest analog is the quarterly Federal Reserve Board’s Senior Loan Officer Opinion Survey, which surveys 70 domestic banks and 23 foreign banks in the U.S. about prior-three-month lending practices and activities. The MLSS is distinctive in providing additional insights from a wider spectrum of lender types, including mortgage banks, as well as through near-term expectations.

We recently published the latest results of the MLSS. We found that lenders’ optimism toward the overall economy and home price appreciation were at survey highs, consistent with recent findings from other consumer and business sentiment surveys. However, lenders’ profit margin outlook in the first quarter of 2017 remains significantly less positive than in the first quarters of both 2016 and the year 2015. Those expecting a lower profit outlook pointed primarily to competition from other lenders and a market shift from refinance to purchase mortgages. We believe that this shift, in concert with expectations of tightening profits, may lead some lenders to adjust their production capabilities and staff resources. Government regulatory compliance, which has historically been a top reason for lenders’ decreased profit outlook, stayed near its survey low from last quarter.

There are additional encouraging signals to consider. Economic sentiment survey results for homebuilders and consumers are generally improved from 2016. Demographic factors are positive, and our research shows that older Millennials, now with higher real wages, are beginning to close the homeownership attainment gap. However, affordability challenges, particularly for first-time homeowners, resulting from tight housing supply and high home prices, stand out as the industry’s greatest obstacle to the continuing housing recovery.

As the housing and mortgage markets evolve, lenders can use the benchmarks provided by the MLSS, as well as from consumers through our National Housing Survey®, as additional insights to complement more traditional data to help navigate an uncertain policy, economic, and technology climate. We look forward to continuing to hear directly from the lending community through the MLSS and to providing the entire industry with timely and potentially bottom line-impacting insights that may help inform business decisions.


Fannie Mae


Douglas G. Duncan is named one of Bloomberg/ Businessweek’s 50 Most Powerful People in Real Estate.Duncan joined Fannie Mae having previously served as senior vice president and chief economist at the Mortgage Bankers Association. His experience also includes service as a LEGIS Fellow and staff member with the Committee on Banking, Finance, and Urban Affairs for Congressman Bill McCollum in the U.S. House of Representatives, and work on the Financial Institutions Project at the U.S. Department of Agriculture.