DEC 26, 2013 6:01pm ET

Forecast Calls for $500B Drop in MBS Issuance

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The headwinds of rising interesting rates and the end of the refinancing wave could reduce agency MBS issuance by more than 30% next year.

Gross Fannie Mae, Freddie Mac and Ginnie Mae MBS issuance will total more than $1 trillion in 2014, down over $500 billion from 2013, MBS strategists at Bank of America Merrill Lynch are forecasting.

“That forecast is aligned with our forecast for total originations of about $1.2 trillion," Mortgage Bankers Association chief economist Mike Fratantoni told NMN.

The interest rate on the 10-year Treasury note rose above 3% on Thursday. The yield on the 10-year Treasury could reach 3.75% by yearend 2014 as the Federal Reserve proceeds with tapering and purchases fewer and fewer U.S. Treasury and agency mortgage-backed securities, accord to the MBS strategists.

“Assuming a linear taper for the Fed, its net MBS purchases in 2014 could total $240 billion,” down from $480 billion in 2013, according to a Dec. 20 BAML “Securitization Weekly” report.

Homebuilders are optimistic about the outlook for 2014. But the MBS strategists are concerned about tight credit and recent declines in mortgage purchase applications. “As a result, we continue to think that, due to persistence of a tight mortgage credit regime, mortgage purchase volume is more likely to surprise on the downside in 2014.”

December is generally a slow time of year for buying a home. Yet purchase mortgage applications are “continuing to run more than 10% below last year’s pace,” Fratantoni said.  

Comments (3)
the headwings of rising interesting rates? ha
Posted by Zach A | Friday, December 27 2013 at 8:29AM ET
the headwinds of rising interesting rates? ha
Posted by Zach A | Friday, December 27 2013 at 8:30AM ET
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