mortgage originations are expected to hit a new record high of $1.54 trillion
next year. That forecast, which would be an increase of 8.5 percent over the projected
total in 2020, was made at the Mortgage Bankers Association’s (MBA’s) virtual
2020 Annual Convention and Expo by Mike Fratantoni, Chief
Economist and Senior Vice President for Research and Industry Technology; Joel
Kan, Associate Vice President of Economic and Industry Forecasting; and Marina
Walsh, CMB, Vice President of Industry Analysis.
While purchase mortgages will gain ground,
the three say that, after a nearly 80 percent jump in refinance activity this
year, those originations are predicted to slow next year, decreasing by 46.3
percent to $946 billion.
MBA expects that, with record-low mortgage
rates driving borrower demand, mortgage originations will total $3.18 trillion
in 2020 – the most since a total of $3.81 trillion in 2003. In 2021, mortgage
originations are expected to fall to around $2.49 trillion, which would still
be the second-highest total in the past 15 years. At $1.54 trillion, next
year’s purchase originations would eclipse the previous all-time high of $1.51
trillion in 2005.
Fratantoni said there are caveats to the MBA’s
forecast. It assumes an effective vaccine will bring the COVID-19 pandemic
under control, leading to a gradual economic recovery that is aided by further
fiscal stimulus. “The economy, labor market, and housing market have all seen
meaningful rebounds since the onset of the pandemic, but there is still
profound uncertainty. Additional waves of the virus could lead to further
lockdowns and more job market instability,” he said. “On the other hand, another
pandemic-related stimulus package would result in faster economic growth and
additional support for the housing market, albeit with slightly more upward
pressure on mortgage rates.”
He added, “2021, particularly the second
half, should be a year of continued purchase growth and slowing refinance
Mortgage rates are forecast to increase
modestly next year. The 30-year fixed-rate mortgage expected to end 2020 at
3.00 percent before increasing to 3.30 percent. It is anticipated that the
Federal Reserve will keep short-term rates at zero at least through 2022.
Kan called the 2020 surge in mortgage
originations, even as credit availability has fallen back to 2014 levels, speaks
to the uneven nature of the current economic recovery. “The greatest strength
in housing demand and applications activity has come from borrowers at the
upper end of the market seeking higher-balance loans,” said Kan. “The expectation
is that credit availability will slowly improve across the spectrum as the
economy does over the next year, but some low-income borrowers and first-time
buyers will likely face difficulties getting approved for a mortgage.”
The surge in borrower demand due to the
record low rates is allowing many lenders to post record production profits, Walsh
said. Still, there are continued signs of capacity constraints, as companies
grapple with high mortgage activity and insufficient staffing levels. Lenders
may also need to prepare for potential rightsizing, given the expectation for
refinances to slow over the next two years.
Servicers, particularly those with FHA portfolios,
are facing elevated delinquency rates. Their top concern will be pursuing the
most appropriate loss mitigation strategies for post-forbearance borrowers and
investors. This will likely result in the operational need for additional loss
mitigation personnel and increased servicing costs,” Walsh said.
Despite the operational challenges and
pandemic-related uncertainty, Fratantoni expects 2021 to be a strong year for
the mortgage market, fueled by low rates, an increase in homebuilding, sizable
demand from millennials, and a pandemic-fueled desire for larger homes.
“As long as the spread of the pandemic is
brought under control, the economy should expand around 3 percent next year,
allowing the job market to improve, incomes to rise, and home sales to
meaningfully increase,” he said.