Refinances Remain Stronger Than Expected

The Mortgage Bankers Association on Wednesday raised its forecast for originations this year with another big increase in its forecast for first-mortgage refinances and a slight decrease in its purchase forecast.

The MBA raised its forecast by 3.1% for total originations for the full 12 months of this year compared with its June 18 forecast. It now expects first mortgage originations to come in at $3.57 trillion in 2021, down 6.6% from 2020. It started the year expecting a 24% drop.

The biggest change in the forecasts has come from refinancing. The boom that started last year as interest rates fell to historic lows hasn’t lost as much force as expected despite slightly higher rates.

In the past two weeks, banks have been reporting continuing gains in residential mortgages, despite lower refinancing volumes compared with 2020’s second quarter.

PenFed Credit Union of Tysons, Va. ($27.6 billion in assets, 2.3 million members as of June 30) reported July 19 that it originated $4.3 billion in mortgages in the second quarter, more than double its volume in 2020′s second quarter. The amount included $301 million in home equity loans.

The MBA also reported Wednesday that its index of mortgage applications for the week ending July 16 was 4% lower than a year ago after seasonal adjustments.

Joel Kan, the MBA’s assistant vice president of economic and industry forecasting, said the drop came as the 30-year fixed rate rose slightly to 3.11% after two weeks of declines.

“Mortgage applications were lower across the board, with purchase applications back to near their lowest levels since May 2020,” Kan said.

“Limited inventory and higher prices are keeping some prospective homebuyers out of the market,” he said. “Refinance activity fell over the week, but because rates have stayed relatively low, the pace of applications was close to its highest level since early May.”

The MBA raised its third-quarter forecast for refinance originations by 34% and its fourth-quarter forecast by 19%. It now expects refinances to fall 39% to $402 billion in the third quarter, to fall 80% to $172 billion in the fourth quarter and to fall 19% to $1.94 trillion for the year.

Purchases have been tweaked only slightly this year. The MBA’s July 21 forecast lowered its expectations for purchases by 4.5% in the third quarter, which lowered the year’s forecast by 1.2%. It now expects purchase originations to rise 1% to $423 billion in the third quarter and rise 14% to $1.64 trillion for the year.

In its economic forecasts, the MBA lowered its expectations for economic growth for the year with a major downward adjustment for the second quarter, followed by upward revisions for the second half. Its June 18 forecast showed GDP rising 7.7% for 2021, while its new forecast shows it rising 7.3%. Last year GDP fell 2.4%.