While it may be small, the mortgage market is still showing subtle signs of strength, beating original expectations for the year, a new industry report from FBR & Co. said.  

For starters, the $253 billion in purchase originations in the second quarter of this year represents the strongest single quarter for industry originations since 3Q07.

The Mortgage Bankers Association recently forecasted a 7% increase in mortgage originations in 2015, growing to $1.19 trillion, with purchase originations rising 15% to $731 billion in 2015, and refinance originations decreasing 3% to $457 billion.

FBR also noted that Inside Mortgage Finance revised its mortgage origination estimates upward 11% for the first half of 2015, from $805 billion to $895 billion, and its purchase origination estimates up 16%, from $361 billion to $418 billion.

As a result, FBR estimates 2015 purchase volumes to demonstrate continued improvement and end at more than $800 billion for the year.

“This, in our view, implies a strong run-rate for the industry into 2016 on the purchase side, particularly given the gradual recovery in the overall economy. We continue to believe that a normalized market of $1.5 trillion is closer than it appeared earlier in the year,” the report said.

As for next year, during a press conference at its annual meeting in San Diego, the MBA said it expects a 10% increase in purchase mortgage originations next year compared to 2015.

While the MBA estimates purchase mortgage originations to reach $905 billion, refinance originations are predicted to decrease by one-third, resulting in refinance mortgage originations of $415 billion.

The two main positives that FBR noted in its report is the four-quarter origination average and the total market size of lending.

Four-quarter average:

We believe the most striking data point out of Inside Mortgage Finance's revised origination totals for the first half is that it takes the four-quarter average to $210 billion from $190 billion for purchase volumes. This represents the best-sustained purchase volume since the trailing four- quarter average in 2Q08.

Total market size:

Total market size of $1.7 trillion could equal 2012/2013 peaks. This has been a boon for originators, who have profited off the robust volumes, and a bust for servicers or asset purchasers who have had the value of their mortgage servicing rights decline from high prepayment speeds.