MBA Lowers its Forecast for Mortgage Originations
The Mortgage Bankers Association (MBA) lowered its 2009 mortgage originations estimate to $2.03 trillion, down more than $700 billion from its March forecast, according to an MBA press release.
The release said $84 billion of the drop resulted from lower purchase originations and the remainder is because of the lower rate/term refinancing and very low volumes in the Fannie Mae and Freddie Mac Home Affordable Refinance Program (HARP).
MBA is now forecasting $737 billion in purchase originations and $1,297 billion in refinance originations.
MBA Chief Economist Jay Brinkmann said that the forecast of mortgage originations was boosted by more than $800 billion in March. These results followed the drop in interest rates associated with the Federal Reserves announcement on the Treasury bond and MBS purchases programs as well as the implementation of HARP.
The MBA warned then that how long rates stayed low would depend on whether other investors stayed in the market, considering the billions in Treasury securities that would be issued to finance record budget deficits and with the Fed expected to purchase only a portion of those Treasury securities.
What has happened is that the prior mortgage forecast was too optimistic since other investors shied away from Treasurys because of expectations of future inflation and the declining value of the dollar.
Brinkmann said the Fed has reduced the spread between conforming mortgage and Treasury rates through its purchase of agency MBS, but it has not maintained lower Treasury yields.
Federal Reserve purchases of long-term Treasurys equaled 50% on new issuance since March. The Fed is likely approaching its self-imposed ceiling of $300 billion given the high issuance of Treasurys in June, and might be reluctant to increase its current commitment to purchase long-term Treasurys.
The March increase in refinance originations was driven by two factors, Brinkmann said, the first being the drop in interest rates and the second being the large volume of HARP loans.
MBA first estimated that purchase mortgage originations in 2009 would be $821 billion, but it lowered this number to $737 billion. This is because home prices have fallen more than expected leading to smaller loans, and because of the large share of distressed sales resulting in the share of all cash home purchases being higher than normal.
The MBA now projects that total existing home sales for 2009 will be 4.8 million units, a drop of 1.2% from 2008, Brinkmann said. He added that the MBA projects new home sales will be 352,000 units, a decline of 27% from 2008. Median home prices for new and existing homes will likely continue to fall, dropping by 10% from 2008 levels, but leveling off in 2010 as the economy improve.
The MBA forecast is for increasing rates through the end of the year and through 2010, Brinkmann said. At some point, the Fed has to withdraw the substantial liquidity it has injected into the financial markets to keep a lid on expected inflation.
However, as Brinkmann noted, a resumption of a flight to quality, induced by political unrest or a renewed financial crisis, could cause long-term Treasury yields to reverse their course.