MBA Revises Origination Projections Updwards for 2012, 2013

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The Mortgage Bankers Association’s (MBA)
chief economist echoed much of what Freddie Mac’s economists said this afternoon
as he hiked MBAs estimates for mortgage originations both this year and in
2013.  Jay Brinkmann said he expects to
see the value of originations hit $1.7 trillion this year and $1.3 trillion in
2013.  Next year’s increases will be
driven by a spillover of refinances from 2012 into the first half of 2013.

The Association revised its 2012
estimates of refinancing to $1.2 trillion in 2012 and expects it to fall to
$785 billion in 2013.  At the same time
it projects that purchase originations will climb to $585 billion next year, up
from a revised estimate of $503 billion this year. 

Brinkmann said that the Association had
expected originations in 2012 to be front-loaded into the first half of the
year then refinancing would fall off as rates increased.  “Instead we saw the refinance market grow during the
year due to a combination of low rates thanks to QE3, slowing global growth
because of continuing problems in Europe, and adjustments in the HARP and FHA
refinance programs.  We expect 2013
refinance originations to play out like our original expectations for 2012,
with a long tail of refis extending through the first half of the year followed
by a rapid drop-off in the second half.”

MBA expects a 16 percent
increase in purchase originations
next year with every quarter doing better
than the same quarter in 2012.  Modest
growth in the economy, an increase in owner-occupied sales financed through mortgages
as opposed to cash purchases by investors, an increase in new home sales, and a
small increase in average home prices will all play a role in the growing
dollar volume. This assumes, Brinkmann said, that changes in the regulatory
environment are not unduly disruptive and FHA and the GSEs do not notably
tighten credit policies.

The economist said he thought it was likely that the
purchases of mortgage backed securities (MBS) by the Federal Reserve in its QE3
program will keep mortgage rates below 4 percent through the middle of next
year.  “Given our expectation that
originations will be front-loaded in the first half of 2013, the Fed’s
purchases during the second half of 2013 could approach 50 percent of all
mortgages originated in the last six months of the year, obviously with the
effect of holding down rates, although there is a possibility that the Fed
could shift into Treasury securities before the end of 2013,” Brinkmann said.

“The originations forecast is based on
expectations of very modest increases in economic growth in 2013 relative to
2012, but growth nonetheless,” he continued.  “We expect gross domestic
product to rise 2.0 percent in 2013 versus only 1.6 percent in 2012, about
equal to the growth rate in 2011 but well below the 3.1 percent growth rate we
saw in 2010.  The growth will be driven by a combination of the biggest
annual increase in residential fixed investment we have seen since 1992, as
well as small increases in consumer spending and business investment.”

Brinkman said he expects unemployment to remain
around 8 percent until the middle of next year before falling to 7.8 percent by
the end of 2013.  The broader measures of
unemployment that are most predictive to the demand for housing are going to
remain stubbornly high with private sector job growth staying in the range of
125,000 to 150,000 jobs per month, well below what we need for a robust market
in home sales, construction, and purchase originations.

He said there are a number of threats facing the
economy the most immediate being the so-called fiscal cliff which could bring
both large tax increases and spending cuts at the first of the year.  The tax increases in particular would be devastating
to economic growth and if Congress doesn’t act to stave them off the entire
weight of these events could cut 3.5 to 4 percent off of MBA’s forecasts.           

“While the fiscal cliff is the most immediate
threat, it is at least one we can control, Brinkmann concluded.  “The
others are primarily international and pose longer-term headwinds for the US
economy.  These include the ongoing economic slowdown in the European
economies and how the fiscal problems in southern Europe will be resolved; the
slowdown in growth in China and the cascading impacts on Japan, Taiwan,
Australia, New Zealand and the countries of southeast Asia; and the prospects
of a war involving Iran and Israel and the response of the other countries in
the Middle East and the impact on world oil prices.”

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