Fannie Mae is forecasting an additional $200-$300 billion in refinancings this year from the HARP program, but that won’t be enough to offset what should be a tepid $1 trillion year in originations.
Doug Duncan, Fannie Mae’s chief economist, has titled his outlook for 2012 “The Year of the Political Economy,” but that does not refer solely to the upcoming U.S. presidential and congressional elections, he said in a meeting with National Mortgage News’ editors and reporters.
What is happening in Europe will be the dominant story throughout the year, and policy choices made there will have global implications.
Domestically, what will have an impact are the tax provisions that expired on Dec. 31, 2011, the ones which will expire on Dec. 31 of this year and the new ones related to health care reform that go into effect Jan. 1, 2013.
Duncan said policy would have a macroeconomic impact of between $500 billion and $750 billion if nothing is done. But, he continued, something will be done, possibly a QE3 program from the Federal Reserve.
There will be slow growth this year, but not enough new jobs will be created to bring unemployment appreciably down, which is not good news for the housing market.
“Housing, in our view, is driven by employment,” Duncan said, pointing out jobs are needed for new household formation to take place. Therefore there must be growth in employment before there is growth in housing.
“Unprecedented uncertainty” will impact the markets, he said, with an outlook for about $1 trillion in originations for this year. This includes an additional $200 billion to $300 billion generated from refinancings related to HARP 2.0.
It will be a long time before a nonconforming secondary market comeback, adding that how the government ends up defining qualified residential mortgage and qualified mortgage would have a lot to do with the reemergence.
Duncan said the tight parameters of the Redwood Trust securitizations were not a realistic indicator of a sustainable nonconforming secondary market.
He said there is a need for a nonprime mortgage business, and he pointed back to the days when this space was occupied by finance companies (hard money lenders) that had strict terms that allowed consumers to rebuild credit.