Purchase loans expected to buck rising mortgage rates next year

Rising mortgage interest rates could curtail refinancings by 57 percent next year, but purchase originations are expected to rise 9 percent, as home sales and prices continue to post gains, the Mortgage Bankers Association (MBA) said in a forecast released today.

Overall mortgage originations are projected to fall 32 percent in 2014, to $1.2 trillion, from an upwardly revised $1.7 trillion this year. Purchase loans would make up about 60 percent of that $1.2 trillion, compared to about 38 percent of originations in 2013.

“We are projecting home purchase originations will increase in 2014 due largely to gains in home sales and home prices. We expect to see a decline in the share of sales paid for with cash, and higher average LTVs on purchase mortgages, due to the rise in home prices,” said Jay Brinkmann, MBA’s chief economist, in a statement.

The trade group anticipates mortgage rates to rise above 5 percent in 2014 and to 5.3 percent by the end of 2015.

“As a result, mortgage refinancing will continue to drop, and borrowers seeking to tap the equity in their homes will be more likely to rely on home equity seconds rather than cash-out refinances,” Brinkmann said.

The MBA forecasts 2015 originations will total also $1.2 trillion, but that purchase loans will make up an even bigger proportion of the total. Purchase loan originations are expected to grow by 10 percent from 2014 to 2015, to $796 billion, while refinancings fall 6 percent, to $433 billion.

The MBA expects the Federal Reserve to begin tapering its bond-buying program in early 2014 and ending it in September 2014. Source: MBA