Refinances Seen Dropping More Than 50 percent in 2014

The Mortgage Bankers Association (MBA) mightrnnot have been smiling as it prepared the economic forecast for 2014 it handedrnout today. The association’s economists say they expect the volume of mortgagernoriginations to drop by 32 percent next year as rising numbers of purchasernapplications fail to compensate for the fall-off in refinancing.</p

MBA expects to see $1.2 trillion inrnoriginations in 2014 compared to a projected $1.7 trillion in 2013.  Purchase originations are projected to risernby 9 percent but refinancing originations will plummet by 57 percent.  </p

The $1.7 trillion projected for this year is a revision from $1.6 trillionrnforecast earlier based on new Home Mortgage Disclosure Act (HMDA) data.  Jay Brinkmann, MBA’s Chief Economist andrnSenior Vice President for Research and Education said therndata showed a higher share of originations going to independent mortgagernlenders, particularly purchase mortgages.  In 2012, 40 percent of thernpurchase volume was originated by independent mortgage companies, up from 36rnpercent in 2011.</p

The dollar volume of purchasernoriginations in 2014 will increase to $723 billion from $661 billion whilernrefinancing volume will drop from $1.08 trillion to $463 billion.  In 2015 MBA expects purchase originations ofrn$796 billion and a further decline in refinancing to $433 billion. </p

Brinkmann said MBA expects home purchasernoriginations will increase in 2014 due largely to gains in home sales and homernprices but also expects to see a decline in the share of sales paid for withrncash.  He anticipates seeing higherrnaverage LTVs on purchase mortgages, due to the rise in home prices.</p

“We expect mortgage rates will increase above 5rnpercent in 2014 and then increase further to 5.3 percent by the end of 2015,”rnhe continued.  “As a result, mortgagernrefinancing will continue to drop, and borrowers seeking to tap the equity inrntheir homes will be more likely to rely on home equity seconds rather thanrncash-out refinances.  We will potentially see a small increase inrnrefinances toward the end of 2015 as the Home Affordable Refinance Program 2.0rn(HARP) expires but HARP activity during 2014 will still be low.  While onrnpaper the number of HARP-eligible borrowers appears large, the reality is thesernborrowers have been unresponsive to numerous attempts to encourage them tornparticipate in the program and are less likely to do so now that rates haverngone up.</p

“Our forecast for the increase in the purchasernmarket is based on our expectations for ongoing improvements in the broaderrneconomy and the jobs market. We are projecting overall economic growth to bern2.4 percent in 2014 and 2.7 in 2015, supported mainly by increases in consumerrnspending and residential fixed investment.  GDP growth will remainrnrelatively weak through the end of 2013 and early 2014, at around 2 percent,rndue to a variety of uncertainties, particularly over US spending and taxrnpolicies linked to the debt limit debate.  Our expectation is that therneconomy will grow somewhat faster in the second half of 2014 as some of thesernissues are resolved.</p

“The 10-Year Treasury rate is expected to stayrnbelow 3 percent for the remainder of 2013 and into early 2014, but then increasernmore rapidly in the second half of 2014 as the Fed tapers its asset purchasesrnand subsequently phases out the third round of quantitative easing (QE3).rn We now expect the Fed to begin tapering its asset purchases in earlyrn2014, and ending QE3 in September 2014. The Fed funds rate will be kept nearrnzero until mid-2015, when we expect to see the first fed funds rate increase.</p

“Unemployment is expected to continue on arndownward path due to falling labor force participation and job growth in thernrange of 150,000 to 170,000 jobs per month.  We expect the unemploymentrnrate will decrease to 6.9 percent in 2014 and 6.4 in 2015.”</p

MBA’s origination projections are a bit more pessimistic</bthan those provided earlier this month by Freddie Mac and Fannie Mae.  Housing market forecasts from the two GSEsrnwere very similar in most respects, projecting total originations for 2013 atrnabout $1.8 trillion, slightly more than MBA. For 2014, Fannie Mae and FreddiernMac estimated originations of $1.36 and $1.40 trillion respectively.