Mortgage lenders are pragmatic about their business prospects over the next quarter, expecting mortgage rates to continue to increase and refinance activity to decline accordingly. Fannie Mae’s Q1 Mortgage Lender Sentiment Survey (MLSS) found 75 percent of the lenders responding expect lower profit margins over the next three months, a 10-point increase from the Q4 2021 survey. Seventeen percent expect no change in profitability while 9 percent are looking for growth. It was the sixth consecutive quarter that the profit outlook was negative, and the net positive of -66 percent was the lowest in the survey’s eight-year history. Lenders cited competition, changes in market trends and in consumer demand as the top reasons for predicting a profit decline. They were also more pessimistic about the overall economy. Fifty-nine percent said it was on the wrong track compared to 29 percent a year earlier. As to demand, lenders were strongly in agreement that refinancing demand would decrease over the next three months and those reporting demand growth over the prior three continued a downward trend across all three loan types (government, GSE eligible, and non-GSE eligible), reaching the lowest share in each case for more than two years. Expectations for growth in government refinancing were the lowest in any quarter in survey history. A similar pattern emerged for purchase mortgage demand. The net share of lenders reporting growth over the prior three months reached the lowest reading for any first quarter over the past two years across all loan types. For the next three months, the net share of lenders expecting demand growth climbed significantly from last quarter across all loan types, but still showed the lowest reading for any first quarter in survey history.