MBA Forecast: 2020 Best Year For Industry Since 2003; 2021 Purchase Originations to Increase to Record $1.54 Trillion
(Clockwise from top left: MBA Vice President of Industry Analysis Marina Walsh; MBA Associate Vice President of Economic and Industry Forecasting Joel Kan; and MBA Chief Economist Mike Fratantoni.)
For the past two years, the star of the real estate finance marketplace has been refinances, spurred by record-low interest rates and lack of housing inventory. That’s about to change.
In its latest forecast, the Mortgage Bankers Association said purchase originations are expected to grow by 8.5% to a record $1.54 trillion in 2021. And after a substantial 70.9% jump in activity in 2020, MBA anticipates refinance originations to slow next year, decreasing by 46.3% to $946 billion.
And with record-low mortgage rates driving sustained borrower demand, MBA forecasts mortgage originations to increase to $3.18 trillion in 2020 – the most since 2003 ($3.81 trillion). For 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 record-high $1.51 trillion in 2005.
“You will look back and remember 2020 as a banner year,” said MBA Chief Economist Mike Fratantoni. “2021, particularly the second half, should be a year of continued purchase growth and slowing refinance activity.”
The MBA 2021 forecast 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,” Fratantoni said. “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.”
The MBA baseline forecast for mortgage rates shows a modest increase next year, with the 30-year fixed-rate mortgage expected to end 2020 at 3.00%, before increasing to 3.30%. On the monetary policy front, MBA expects the Federal Reserve will keep short-term rates at zero at least through 2022.
“Higher rates will result in lower refi volume,” Fratantoni said.
MBA Associate Vice President of Economic and Industry Forecasting Joel Kan said the surge in mortgage originations this year, despite mortgage credit availability tightening 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,” Kan said. “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.”
MBA Vice President of Industry Analysis Marina Walsh said many mortgage lenders are posting record production profits in 2020, fueled by a surge in borrower demand from record-low rates. And yet, there are continued signs of capacity constraints, as companies grapple with high mortgage activity and insufficient staffing levels. At the same time, she said mortgage lenders might need to prepare for potential rightsizing, given the expectation for refinances to slow over the next two years.
On the servicing side of the business, elevated borrower delinquency rates – particularly for FHA borrowers – remain a concern. Walsh said top of mind for servicers will be pursuing the most appropriate loss mitigation strategies for post-forbearance borrowers and investors.
“Servicers will remain busy in 2021 helping borrowers exit mortgage forbearance and into longer-term solutions. This will likely result in the operational need for additional loss mitigation personnel and increased servicing costs,” Walsh said.
Despite 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 desire – as a result of the pandemic – of more households seeking 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,” Fratantoni said.
The MBA updated Mortgage Finance Forecast and Economic Forecast can be viewed here.
