MBA Forecasts Originations to Drop 25% Due to Economic Uncertainty

There’s another tough year ahead with mortgage originations expected to drop 25% to $900 billion in 2012, down from an estimated $1.2 trillion in 2011, says the Mortgage Bankers Associations (MBA), driven by a significant decline in refinance originations due to economic uncertainty and fewer eligible borrowers, and only slight increases in purchase originations.

“Purchase volume will stay low as home sales in 2012 remain little changed from 2011, and as home prices begin to grow by the end of 2012,” said Jay Brinkmann, MBA’s Chief Economist and Senior Vice President for Research and Education, in a statement. “The gradual increase in mortgage rates will slow refinance volume, but the first half of 2012 will benefit from a spillover of applicants from the end of 2011, and potential changes to the HARP program may also increase refinance volume.”

Origination volumes in 2012 could end up at their lowest point since 1997, the MBA forecasts, thanks to continued slow economic growth and elevated unemployment throughout the year which could slow the improvement in delinquency and foreclosure volumes.

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Purchase originations are forecasted to increase slightly to $412 billion for 2012, up from 2011’s $400 billion, the MBA expects to see originations shoot up nearly 87% to $770 billion in 2013 as the economy picks up speed and home sales and prices start to increase.

Fixed mortgage rates are expected to remain at historic lows, finishing 2011 at around a 4.5% average for the year, dropping down somewhat to 4.4% for 2012 before climbing back up to 4.9% by 2013.

However, despite lower mortgage rates towards the end of the year, refinance originations in 2011 will drop to $783 billion in 2011 down from the previous year’s estimated $1.1 trillion, as there were fewer eligible borrowers left to refinance.

“We expect this “burnout” to continue through 2012 and 2013, even as rates remain below 5%, with refinance originations falling steadily to $495 billion and then $332 billion, respectively,” said Brinkmann.

Europe’s worsening economic situation could also have an impact on the US economy.

“There is the risk that the European situation could harm the US financial system, and could lead to further damage to US consumer and business confidence,” Brinkmann said. “If that were to happen, we think that the US could fall into a short, and relatively mild recession.”

On the one hand, a recession would lead to a drop in 2012 origination volume, said Brinkmann, but if the economy experiences a faster recovery led by the housing market, it could mean faster home price growth and more sales volume, which would serve to somewhat increase purchase originations, but would cut off refinance volume sooner than the MBA’s forecast.

“We think growth driven by consumer spending on durables and business spending on new plants and equipment will keep the US out of recession, but there is significant uncertainty around this forecast,” said Brinkmann.

On a more positive note, with housing inventory and shadow inventory declining steadily, it’s possible the economy could lead to above trend growth in 2012, although this isn’t likely to happen, although Brinkmann said the odds of this scenario are “low and we think the most likely outcome is another year of frustratingly slow economic growth and stubbornly high unemployment.”

Written by Alyssa Gerace

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  • Prognostication is far more the domain of seasoned economists than CPAs; however, the outlook of Mr. Brinkmann and my own have more areas of commonality than differences.   He is looking for a 25% drop in the dollar amount of originations in 2012.  An eighteen percent drop in total HECM endorsements seems likely for our industry this fiscal year (from just over 73,000 to not quite 60,000).
     
    Mr. Brinkmann is unsure about 2013 which is more than reasonable.  If anything the expectations of Mr. Brinkmann seem to parallel my own.  The rational behind each prediction is much different but the results are very close despite looking at two different segments of the mortgage industry.
     
    On June 19th, the first estimate of 61,200 endorsements for the current year was made based on estimated endorsements of 74,300 endorsements for last fiscal year.  With actual endorsements coming in at 73,131, the estimated endorsements for this fiscal year were ratcheted down to slightly less than 60,000.
     
    Last year at this time, there were distinctly different views of the market.  HUD predicted 75,000 endorsements.  Some industry prognosticators were looking at 85,000 endorsements and industry leaders were declaring there would be over 100,000 endorsements for last fiscal year.  It turned out even HUD was overoptimistic.  For some of us, actual was 14% less than predicted.  It came as a complete surprise when it became apparent last winter that the endorsements for last fiscal year would be less than the 79,150 endorsements for the fiscal year ended September 30, 2010.
     
    Well, now that things are on the record, we will see how they turn out next fall. Here is hoping the latest estimate is far too pessimistic.

  • Prognostication is far more the domain of seasoned economists than CPAs. However, the outlook of Mr. Brinkmann and my own have more areas of commonality than differences.   He is looking for a 25% drop in the dollar amount of originations in 2012.  An eighteen percent drop in total HECM endorsements seems likely for our industry this fiscal year (from just over 73,000 to not quite 60,000).
     
    Mr. Brinkmann is unsure about 2013 which is more than reasonable.  If anything the expectations of Mr. Brinkmann seem to parallel my own.  The rational behind each prediction is much different but the results are very close despite looking at two different segments of the mortgage industry.
     
    On June 19th, the first estimate of 61,200 endorsements for the current year was made based on estimated endorsements of 74,300 endorsements for last fiscal year.  With actual endorsements coming in at 73,131, the estimated endorsements for this fiscal year were ratcheted down to slightly less than 60,000.
     
    Last year at this time, there were distinctly different views of the market.  HUD predicted 75,000 endorsements.  Some industry prognosticators were looking at 85,000 endorsements and industry leaders were declaring there would be over 100,000 endorsements for last fiscal year.  It turned out even HUD was overoptimistic.  For some of us, actual was 14% less than predicted.  It came as a complete surprise when it became apparent last winter that the endorsements for last fiscal year would be less than the 79,150 endorsements for the fiscal year ended September 30, 2010.
     
    Well, now that things are on the record, we will see how they turn out next fall. Here is hoping the latest estimate is far too pessimistic.

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