Loan Programs

MBA Pegs Future Annual Loan Originations at $1.5T-$1.6T

By Brad Finkelstein

SAN DIEGO-While Mortgage Bankers Association chief economist Jay Brinkmann projects mortgage originations for the next three years to be $1.6 trillion, $1.5 trillion and $1.6 trillion, respectively, there is still work to be done to restore confidence in the economy and housing market.

Speaking at the group's annual convention (as well as at a press conference) here, under the heading of what's next, Mr. Brinkmann said government needs to rebuild the economy without putting a drag on long-term growth. The oversupply of housing caused by foreclosures needs to be resolved.

There needs to be a secondary market for mortgages that investors are willing to purchase paper in. The credit model and assumptions used have to be rebuilt in a way that the errors of the past are not repeated.

Finally, he said that consumer and regulator confidence in the origination process must be restored.

For the current year, MBA projects originations of under $2 trillion, with $1.2 trillion coming from refinancings.

Rates for the 30-year fixed-rate mortgage will start to rise next year, reaching an average of 5.4% in 2010, 6% in 2011 and 6.3% in 2012.

Next year, Mr. Brinkmann predicts $803 billion of purchase mortgages and $754 billion of refinancings. He said he is more confident in the purchase projection than the refi one because of the possibility of rate volatility.

When asked if an extension of the first-time homebuyer tax credit would have any impact on next year's forecast, Mr. Brinkmann said no because he finds there is only a 4% impact of the tax credit on purchase volume. The margin of error in the forecast is 4%.

He elaborated that 1.4 million people have claimed the tax credit through the third quarter. The estimate of the number of buyers it brought into the market ranges between 150,000 and 400,000.

The question remains how many of them were potential homebuyers for 2010 and 2011 that were brought forward. But the drop-off in automobile sales after the Cash for Clunkers program ended was 23%, he noted.

The amount allocated for the stimulus program is $467 billion; the government has spent only $161 billion. So he declared the true impact of the stimulus effort will not be felt until next year.

Mr. Brinkmann compared the debate over the economic recovery to "Sesame Street's letter of the day." People are debating whether we are in a V-, W- or U-shaped recovery.

His view is that we are in a modified U-shaped recovery. While real gross domestic product went positive in the third quarter 2009 at 3%, he projects growth will slow to 2.6% in the fourth quarter and 2.2% for each of the two quarters after that, before rising again in the third quarter of 2010.

He provided statistics that seek to debunk the claims that there is a "shadow" unemployment market that is not being counted in current data.

Mr. Brinkmann said the most recent data show the labor participation rate is over 65%. Back in January 1980, the labor participation rate was 64%.

Still, of concern to mortgage servicers, unemployment will go to 10% by the end of the year and as high as 10.2% by the middle of next year.

Another concern is what happens after the end of the Federal Reserve's mortgage-backed securities purchase program.

He said the Fed is paying more than other buyers are wiling to pay, and thus was driving down the option-adjusted spreads. Other buyers may come in and there would be a small increase in spreads.

Ambiguity caused the widening of spreads in the first place. The question remains what will be done to resolve that ambiguity.

How long will the Fed hold the paper it has purchased is another question to be answered. He said the Fed needs to be forthcoming on the initiation and pace of its selling strategy.

But the end of the purchase program could raise all long-term yields because of the increase of supply, Mr. Brinkmann said.