remains strong, despite headwinds
The Mortgage Bankers Association (MBA), in its February 2017 forecast, estimated that total mortgage originations
will decrease to $1.57 trillion this year, down from $1.89 trillion in 2016. The total is expected to increase slightly in
2018 as a growing purchase market is offset by more declines in refinance activity in the face of rising rates.
We expect the 30-year mortgage rate will hit 4. 7 percent by year-end 2017, reach 5 percent by the second
half of 2018 and increase further to 5. 5 percent by year-end 2019. With a large segment of borrowers having
taken advantage of rates below 4 percent in recent years, refinance volume will decrease even though rates
in the 5 percent range are still low by historical standards.
We also expect that Federal Reserve
officials will be talking much more
in 2017 about tapering or stopping
reinvestments in mortgage-backed
securities, which could lead to wider
mortgage-Treasury spreads. In fact,
Fed Chair Janet Yellen made exactly this point in her testimony before
Congress this past February.
Employment growth is healthy, wage
growth is picking up, as is inflation. In
combination, these factors point to
rising rates in the U.S., even though external international factors continue to
exert downward pressure on rates and
some near-term volatility. Our outlook
is for these trends to continue for 2017
As the new presidential administration
and Congress continue to take shape,
much remains to be seen as to what the form, timing and impact of proposed policies will be. Tax reform, health
care reform, trade policy, infrastructure spending and a host of other policies all may influence growth. We will
continue to monitor these developments and will incorporate them into our projections as and when the information is available.
On a national basis, total monthly mortgage applications, including both home purchase and refinance, fell by
23. 5 percent this past December, compared to the prior month, and by 10. 6 percent year over year — the first
annual drop in applications in 11 months. Purchase applications this past December decreased 0.5 percent year
over year, and although small, this is the first decline in annual purchase applications in two years.
Refinance applications declined 17. 3 percent this past December on an unadjusted basis, compared to a year
ago. The average loan size for home-purchase applications dropped slightly, to $302,000, after having reached a
survey high of $308,000, while the average loan size for refinance applications dropped to $242,000.
MBA’s most recent National Delinquency Survey shows that the delinquency rate for mortgage loans on one- to
four-unit residential properties increased to a seasonally adjusted rate of 4. 8 percent of all loans outstanding at
the end of fourth-quarter 2016. The delinquency rate was up 28 basis points from the previous quarter, and was
3 basis points higher than one year earlier.
It should be noted, however, that although the overall delinquency rate increased across all loan types covered
by our survey, it was an increase from the 10-year lows of third-quarter 2016. Also worth noting is that the percentage of loans on which foreclosure actions were started during the past fourth quarter was 0.28 percent, a
decrease of 2 basis points from the previous quarter, and 8 basis points lower than one year earlier. This is the
lowest rate of new foreclosures started since the fourth quarter of 1988.
The one bit of contrary news was a sharp increase in the Federal Housing Administration (FHA) loan-delinquency
rate, up 72 basis points this past fourth quarter, compared to the prior quarter, but still down 2 basis points year
over year. It is not yet clear whether this quarterly spike represents a turn in the credit performance of FHA loans
or just some short-run volatility.
We continue to see strong fundamentals in the overall economy, such as rising home values and increased employment, which bodes well for the future loan performance. n
Mike Fratantoni is chief economist
and senior vice president of research
and industry technology at the Mortgage Bankers Association (MBA). He
is responsible for overseeing MBA’s
industry surveys, benchmarking studies, economic and mortgage origination forecasts, industry-technology
efforts, and policy-development
research for the single-family and
commercial/multifamily markets. Prior
to joining MBA, Fratantoni worked in
risk management and senior economist roles at Washington Mutual and
Fannie Mae. Reach the MBA at
Source: Mortgage Bankers Association
Total U.S. mortgage debt, one- to four-unit homes
30-year fixed interest rate
Forecast: U.S. Mortgage Debt Outstanding