Credit Unions Should Expect Gentler Dip in Mortgage Originations: MBA Report

The Mortgage Bankers Association said it still expects a drop in mortgage originations next year, but the fall will be cushioned as the refinance boom maintains more momentum than it expected a month ago.

And the MBA said its estimates released Wednesday are premised on controlling the pandemic and further relief for struggling households and businesses in 2021.

The MBA said it expects purchase mortgages to surge by 28% in the fourth quarter and 32% in the first quarter, with diminishing gains continuing through 2023. For 2020, it said it expects purchase originations to rise 16% to $1.42 trillion, and 9% to $1.54 trillion next year — eclipsing the previous all-time high of $1.51 trillion in 2005.

MBA chief economist Mike Fratantoni said he expects 2021 to be “a strong year for the mortgage market, fueled by low rates, an increase in homebuilding, sizable demand from millennials, and a desire — as a result of the pandemic — of more households seeking larger homes.”

“As long as the spread of the pandemic is brought under control, the economy should expand around 3% next year, allowing the job market to improve, incomes to rise and home sales to meaningfully increase,” Fratantoni said.

The MBA’s 2021 forecast assumes an effective vaccine will bring the COVID-19 pandemic under control, leading to a gradual economic recovery that is aided by further fiscal stimulus, Fratantoni said.

“The economy, labor market and housing market have all seen meaningful rebounds since the onset of the pandemic, but there is still profound uncertainty. Additional waves of the virus could lead to further lockdowns and more job market instability,” he said.

“On the other hand, another pandemic-related stimulus package would result in faster economic growth and additional support for the housing market, albeit with slightly more upward pressure on mortgage rates.”

Joel Kan, the MBA’s assistant vice president of economic and industry forecasting, said the surge in mortgage originations this year, despite mortgage credit availability tightening back to 2014 levels, speaks to the uneven nature of the current economic recovery. Elevated delinquency rates also remain a concern, particularly for FHA borrowers.

“The greatest strength in housing demand and applications activity has come from borrowers at the upper end of the market seeking higher-balance loans,” Kan said. “The expectation is that credit availability will slowly improve across the spectrum as the economy does over the next year, but some low-income borrowers and first-time buyers will likely face difficulties getting approved for a mortgage.”

The MBA’s latest monthly estimate released at its virtual annual meeting was slightly rosier than its Sept. 18 version. The difference between the reports was that the MBA cut its estimates for total 2020 originations by $48 billion — adding $70 billion to its purchase estimate and trimming $118 billion from its refinance estimate.

The difference for next year is an overall $251 billion increase from September’s estimate with forecasts rising $86 billion for purchases and $165 billion for refinances.

The volatility of refinances has been the biggest factor pushing changes in month-to-month expectations and results. The MBA said it now expects refinances will rise 71% to $1.76 trillion this year. Next year, it sees refinances falling 46% to $946 billion, followed by drops of 39% in 2022 and 9% in 2023.

The fall off from this year’s record refinance volumes, will eclipse the purchase gains. The MBA said it expects total originations will rise 41% to $3.18 trillion this year fueled by “record-low mortgage rates driving sustained borrower demand.” The amount is the most since 2003 when total originations reached $3.81 trillion.

After this year, it said it expects drops in total originations of 22% in 2021, 14% in 2022 and about 1% in 2023. But with $2.49 trillion expected in 2021, the volume would be the second-highest in 15 years.