The surge in refinancing, now down to a virtual trickle, was officially pronounced dead and gone at the Mortgage Bankers Association's (MBA) annual secondary market conference in New York."We've lost borrowers who have the ability (to refinance) and those who have the ability no longer have the incentive," Michael Fratantoni, the MBA's director of research and economics, told the meeting.
While the market is "close to the turnaround point" in purchase mortgage volumes, Fratantoni said, "the refi portion is essentially over."
The share of borrowers with loans at rates above 5.5% either don't have jobs, have lost too much equity or have poor credit, the MBA economist explained. Or they simply don't want to refinance for some unknown reason.
While the loss of easy loans is a blow to lenders, it is good news to servicers who are impacted by the loan runoff. But servicers also received a bit of bad news from the MBA's chief economist, Jay Brinkman, who pointed out that mortgage debt outstanding is continuing to fall. Worse, he said, the "likelihood of a turnaround is not good." And the anticipated increase in purchase volumes "may not be enough" to replace the loss.
According to data gleaned from the group's weekly applications survey, the mortgage business has settled down into a "plain vanilla market." But the pattern of refinances indicates that the composition of those loans is changing, as borrowers opt to "de-leverage" with shorter payback periods, leading to the decline in debt outstanding, Fratantoni pointed out.
Nearly 24% of those who refied went with a 15-year amortization period, and almost 12% more took loans with durations of 10 years or less.
In other MBA and housing news, the trade group is projecting a 28% jump in purchase money originations in 2011. And even though refinancing originations are expected to fall off the cliff, the MBA is still looking for a $1 trillion year.
Issued at the group's annual secondary market conference in New York, the latest forecast calls for an increase in purchase money mortgages from $474 billion last year to $606 billion in 2011.
Refi lending, on the other hand, is projected to decline 59%, from $1.33 trillion in 2010 to just $424 billion this year.
MBA expects an even more precipitous drop in refi business in 2012, when the volume of new loans taken out to replace existing mortgages falls to $233 billion. At the same time, though, purchase money lending is expected to increase again in 2012, to $729 billion.
Overall, originations will decline from $1.5 trillion in 2010 to $1.03 trillion this year and to $962 billion in 2012.
The MBA's economists' outlook for mortgage rates is not terribly terrific, either. They expect the benchmark 30-year rate to reach 6.2% by the end of 2012. At that rate, Fratantoni said that buyers "may not be in the same rush to buy as past generations."
For that reason, the MBA, like other housing trade groups, is not expecting any increase in housing starts in 2011 – and a slight drop in single-family starts.