Some decent news to start off Tuesday morning came from the Mortgage Bankers Association
, which said that it had increased its forecast of mortgage originations in 2009 by over $800 billion, due to a refinancing boom as mortgage rates have headed below the 5 percent mark in some cases. The MBA said it now expects originations to total $2.78 trillion, which would make 2009 the fourth highest originations year on record, behind only 2002, 2003, 2005.
Zillow.com reported Tuesday morning
that the weekly average rate borrowers were quoted on Zillow Mortgage Marketplace for thirty-year mortgages fell to 5.06 percent, down from 5.21 percent the week prior. On Monday evening, rates fell slightly further to an average of 5.03 percent, the service said.
"This boost is due entirely to the expected increase in mortgage refinancing activity motivated by the drop in interest rates following last week’s Federal Reserve’s announcement on the Treasury bond and mortgage-backed securities purchases programs and the Fannie Mae and Freddie Mac refinance programs," the mortgage lobbying and trade group said in a press statement. The group lowered slightly, however, its forecast of mortgage originations tied to home purchases.
“While the Fed has not announced that it is targeting specific rates for either 10-year Treasury rates or rates on 30-year fixed-rate mortgages, the effect of having the Fed bid in the market for a sustained period is enough to create a refinance incentive for a tremendous number of homeowners," said Jay Brinkmann, chief economist at the MBA and the group's senior vice president of research and econmics. "The vast majority of mortgages originated before the latter part of 2008 are probably going to have at least a 50 basis point refinance incentive for at least the next several months, with mortgage rates hitting lows not seen since the early 1950s and late 1940s.”
This origination boom, however, will differ from recent years past -- while previous record origination years of 2002, 2003 and 2005 had large amounts of subprime loans and jumbo loans, the MBA said it expects 2009 originations to consist almost entirely of conforming and/or FHA-eligible mortgages.
The MBA had forecast refi volume to increase to $1.13 trillion this year, up from an estimated $765 billion in 2008; the MBA's new estimate pegs refi volume at $1.96 trillion. Estimated purchase originations for 2009 were revised down to $821 billion, from an earlier estimate of $851 billion; 2008 purchase mortgage originations totaled $854 billion in 2008, the MBA said.
Brinkmann suggested that the revised forecast would "test the operational capacity of a number of mortgage banking firms," citing the reduced availability of warehouse lines as a chief concern. He also suggested that mortgage servicers would see significant churn on their books as borrowers replaced existing loans with new ones -- a trend that could negatively affect the value of mortgage servicing rights as prepayment speeds increase.
Which means that while originators may have something to cheer about, the nation's housing markets may see less to brighten this picture this year. “Even with amazingly low interest rates, lower home prices and the first-time homebuyers tax credit, it is unlikely that we will see an increase in overall home sales until we see some stabilization of employment,” Brinkmann said.
The MBA projected that total existing home sales for 2009 will drop 2.5 percent from 2008 to 4.8 million units, while new home sales will decline a far sharper 39 percent in 2009 to 293,000 units. The group said it expects median prices to post a five or six percent drop this year.
Obviously, good tidings for originators are likely to last only as long as rates remain low; a prospect that depends on overseas investors as much as it does on the government's ability to sop up excess supply in the face of waning global demand for U.S. mortgages. "The effect on rates will largely be determined by whether other investors stay in the market or shy away from Treasuries due to expectations of future inflation and the declining value of the dollar," said Brinkmann.
"If so, the effect on rates will be more short-lived and our revised refinance forecast prove too optimistic."
Paul Jackson at email@example.com