2012: Another Tough Year for Originators

by devteam October 13th, 2011 | Share

The chief economist of the Mortgage BankersrnAssociation (MBA) told association members Tuesday that they are in for yetrnanother tough year.  Jay Brinkmann,rnspeaking at MBA’s annual gathering in Chicago, laid out a litany of economic illsrnthat will plague the industry through 2012.</p

Brinkmann expects mortgage originations to fall fromrnan estimated $1.2 trillion in 2011 to $900 billion next year.  This will be driven by a significant declinernin refinance originations which will not be offset by the expected slightrnuptick in purchase originations.</p

Brinkmann, the association’s seniorrnvice president for research and education, said the forecast calls for purchasernoriginations to decrease to $400 billion this year from an estimated $472rnbillion in 2010.  Assuming that growthrnwill continue to be slow, purchase originations will increase slightly tornaround $412 billion next year.  He estimates,rnhowever that, as the economy improves and home sales and prices rise, thererncould be an increase in purchase originations in 2013 to around $770rnbillion.  ” A faster economic recovery led byrnthe housing market would mean faster home price growth and more sales volume, increasingrnpurchase originations somewhat,” he said, “but would cut off refinance volume soonerrnthan in our forecast.”</p

Salesrnof existing homes will be flat, remaining near the 4.9 million unit pace bothrnthis year and next, then will increase to 5.2 million units in 2013.  New homes sales will also remain slow throughrn2012 but “will show some meaningful increases in 2013.”</p

Homernprices outside of the foreclosure market have stabilized and some markets arerneven showing year-over-year appreciation. rnFHFA’s repeat transactions measure which includes both distressed andrnnon-distressed transactions will continue to decline to mid-2012 and then beginrnto increase, but that will vary by locality and home price.</p

Despiternthe low and still declining interest rates, refinance originations in 2011 willrnbe down, falling to $783 billion from an estimated $1.1 billion in 2010.  There are fewer eligible borrowers left tornrefinance and that “burnout” is expected to continue through 2013 withrnrefinance originations projected at $495 in 2012 and $332 billion in 2013.</p

Therneconomist said that he expects mortgage rates are at or near their low points “butrnwe have been wrong on this call before.” rnFixed rates should average about 4.5 percent for the year and fall aboutrnone basis point in 2012 before climbing back up to 4.9 percent in 2013.  MBA’s forecast assumes that the FederalrnReserve maintains short-term rates near zero for the next two years and thatrnmortgage-Treasury spreads remain wide.  </p

Asrnto the overall economy, Brinkmann forecast real GDP growth at 1.3 percent thisrnyear, but growth in Q1 was 0.4 percent and has tracked higher each quarter. Hernexpects 2012 to continue the pattern with growth of around 1.7 percent for thernyear.  A modest recovery in 2013 shouldrndrive growth to 2.4 percent.  Hernpredicted that consumer spending on durable goods and business spending on newrnplants and equipment will keep the country from falling into a second recessionrnbut uncertainty about the country’s economy and even more concern over eventsrnin Europe are still holding back recovery. rnEurope which is or soon will be in recession could harm the US economy andrndrive us into a short and relatively mild recession.  “We do not,” he said, “anticipate any actionsrnout of Washington that would have a material impact on the economic outlook.” </p

Unemployment will continue tornclimb until the second quarter of 2012, hitting 9.3 percent for the year andrndeclining back to the current level of 9.1 percent in 2013.  “Even though both economic and jobrngrowth are in positive territory, they are still insufficient to lower thernunemployment rate in the near term.”</p

The uncertainty about the economyrnis not one-sided.  He pointed to a steadyrndecline in the housing inventory and the shadow inventory as indications that arnhousing recovery could be more robust than expected and could spur fasterrnoverall growth.  “The odds of this scenario, however,rnare low and we think the most likely outcome is another year of frustratinglyrnslow economic growth and stubbornly high unemployment.”</p

“Inrnsummary, regardless of which path the economy and mortgage rates take, we arernpredicting another tough year, with origination volumes at their lowest pointrnsince 1997. Continued slow economic growth will mean that unemployment willrnremain elevated through 2012, which could slow the improvement in delinquencyrnand foreclosure volumes, meaning that in addition to lower production volumesrnfor the industry, mortgage servicers will also continue to be underrnpressure.” 

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About the Author


Steven A Feinberg (@CPAsteve) of Appletree Business Services LLC, is a PASBA member accountant located in Londonderry, New Hampshire.

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