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About 7M refi candidates missed the “forever rate” boat

Rates jumped to 3.17% last week and Black Knight reported that there are now just 11.1 million “high quality” refi candidates. The smallest number of potential refi candidates in a year.

Mortgage

Mortgage refinancings set to surge to a 17-year high

Lenders probably will originate $1.5 trillion in refis, a 51% jump from 2019, Fannie Mae says

If you’re in the mortgage business, fasten your seatbelts. Refinance volume is set to spike to a 17-year high this year as mortgage rates fall to the lowest levels ever recorded, Fannie Mae said.

Even as other parts of the economy tank, lenders will originate $1.5 trillion in refis in 2020, a 51% jump from 2019, according to the forecast. That would be the highest level since 2003 when $2.5 trillion of mortgages were refinanced, according to data from the Mortgage Bankers Association.

The lowest interest rates on record will bolster refis after the Federal Reserve began buying mortgage-backed securities to stimulate bond demand and grease the wheels of the credit markets. The average U.S. rate for a 30-year fixed mortgage fell to an all-time low of 3.23% at the end of April, according to Freddie Mac.

It’s probably heading even lower, according to the Fannie Mae forecast. The average rate probably will be 3.2% in the second quarter, down from 3.5% in the first quarter, and drop for the rest of the year.

In the third quarter, it probably will be 3.1% and in the fourth quarter, it probably will average 3%. In 2021’s first quarter, the average probably will dip to 2.9%, Fannie Mae said.

The share of originations that will be refinancings likely will jump to 58% this year from 44% in 2019, Fannie Mae said. That puts the market into “boom” territory – when more than 50% of originations are for refinancings.

The last time the refi share was that high was in 2012, when 71% of originations were for refinancings, according to MBA data.

Refi originations will be at “levels similar to 2012, when the last refinance boom occurred,” the forecast said. In dollar volume, refis in 2020 should surpass 2012 by about $74 billon, based on Fannie Mae’s projection and historical data from MBA.

The rest of Fannie Mae’s forecast was grim. Existing home sales probably will drop 15% to 4.55 million in 2020, and single-family housing starts likely will drop 10% as builders take a pause to see what the economy will do, the forecast said.

GDP likely will fall 5.3% for the year, after a record-breaking 37% drop in the second quarter is followed by a rebound, the forecast said.

The unemployment rate probably will average 11% for the year, after coming back from a spike to 18% in the second quarter. The third quarter likely will average 13% and the fourth quarter likely will see a 9.5% unemployment rate, Fannie Mae said.

The average in the first quarter, before the pandemic forced states to close businesses in the final weeks of March to stem the spread of the virus, was 3.8%, Fannie Mae said.

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