MBA Cuts Loan Origination Forecast — Mortgage Application Volume Dips

LOAN ORIGINATION FORECAST – What the Fed Rate Increase Means for the New Era Of Mortgage Rates

The latest Mortgage Application Survey from the Mortgage Bankers Association (MBA) shows the chilling effect rising mortgage rates have on the loan origination forecast this season as originators race to grab a piece of the shrinking mortgage customer pie.

This report comes at the same time the MBA cut its mortgage origination forecast 3.5 percent for Q1 2017.

The MBA reported the mortgage loan originations (for one-to-four family mortgages) is projected to reach $352 billion in Q1 2017. The December Mortgage Finance Forecast was released following the Fed rate increase announcement. In November, MBA had projected first-quarter mortgage originations would be closer to $365 billion.

“We have adjusted the forecasted path of interest rates upwards slightly in our December forecast, and expect that refi activity will continue to fall during 2017,” MBA’s Chief Economist Mike Fratantoni said in a recent statement. “We expect that purchase activity will be robust, backed by the strength of the job market.”

For all of 2017, MBA has now predicted $1.576  trillion in loan origination volume, which is also down from MBA’s November forecast of $1.584 trillion. Refinancing volume is anticipated to reach $140 billion in Q1, which is down about $5 billion from the November projection. Purchase origination volume is projected to be $212 billion, down $8 billion from November’s forecast. 2016’s origination volume for is anticipated to be $1.891 trillion.

The latest MBA mortgage application weekly survey, which includes MBA data for the week ending Dec. 9, shows mortgage loan application volume dipped 4 percent from the week prior. Not only does the survey indicate the pool of new homeowners seeking mortgages is slowing, but it also shows refinancing continues to dip.

LOAN ORIGINATION FORECAST – Inside the Mortgage Application Volume Data

What the latest MBA survey data shows is the Refinance Index also decreased 4 percent from the week prior. As for new homes being purchased, the Purchase Index decreased 7 percent, compared with the prior week – but was still 2 percent higher than the same week in 2015.

What this means for the mortgage industry is that as refinancing and home purchase financing dip, more LOs will compete for a shrinking pool of opportunity — making the mortgage industry even more competitive.

Other relevant figures from the MBA Mortgage Application Application Survey report in terms of overall application mortgage activity share:

  • Refinancing share jumped from 56.2 percent to 75.2 percent of total applications.
  • The adjustable-rate mortgage share also increased to 6.2 percent
  • FHA share increased slightly to 11.6 percent (from 11.3 percent).
  • VA share decreased from 12.6 percent to 11.9 percent.
  • USDA share remained at .9 percent.

LOAN ORIGINATION FORECAST – How The Fed Interest Rate Increase Impacts Mortgage Rates

This report comes at a particularly uncertain time for the mortgage industry as the Fed rate was just raised for the second time since the 2008 financial crisis (last time was in December 2015). While, as The New York Times Report notes, the Fed’s rate increase doesn’t have a direct impact on long-term mortgage rates, but when the rates go up, the banks tend to offset the costs by raising consumer-driven loans (like mortgages).

The Fed rate increase was highly anticipated leading up to the decision announced Dec. 14, which is one reason mortgage rates have been increasing much of the tail-end of 2016. From all indication, the Fed will continue increasing interest rates, which would suggest mortgage rates will continue to rise as banks look to offset the rising costs.

A LendingTree report indicates the national average mortgage interest rate in December is 4.3 percent, which means if the rate goes up by another percentage point in 2017, the average mortgage ($237,000) would go up $138 a month. As historic data suggests, as mortgage rates goes up, consumers are less opt to take out a mortgage and fixed-rate mortgage holders hold back on refinancing until rates drop again.

Rates already began to rise after the election of President-Elect Donald Trump due to the uncertainty surrounding his presidency and its impact on bond rates, but the Fed rate hike is anticipated to continue to impact the mortgage industry heavily in 2017.

Brad Springer, CEO and Founder of RatePlug advises that it is not all doom and gloom, if originators shift their approach from advertise to engage.  For LOs, the key to success now rests upon personal relationships with productive agents. The more you can do to support your referral sources, the better.

“It’s important to keep in mind, however, that mortgage rates are still at a historic low; rates were between 4-7 percent during the period between 2001-2007 and in the ‘90s they were even higher around 7-9 percent,” said Springer.

But as the Fed continues to increase rates, as is projected for the next few years, it may confirm what everyone in the mortgage industry has been saying: the era of low mortgage rates are over — at least for the foreseeable future.