Until a few months ago it was thought that 2012 might turn out to be a disaster year for loan production, one in which refinancings finally withered and home purchases continued to be anemic. But not anymore.
Then again, no one is anticipating a banner year either, but with interest rates staying relatively benign—despite a recent uptick and then a decline—many lenders are feeling, well, happy.
“The depressive mood that we've been used to has sort of lifted,” said one investment banker, requesting his name not be used. “People feel good—for now. But just don't ask them about servicing values.”
Jay Brinkmann, chief economist for the Mortgage Bankers Association, believes part of the mild optimism stems from the new HARP 2.0 program. “HARP will hold up volumes,” Brinkmann, “but how much—we don't know.” (Late last year HARP was updated, allowing all current underwater GSE loans to be refinanced regardless of LTV status.)
Brinkmann is forecasting just under $1.1 trillion of residential fundings this year, up slightly from previous predictions. He sees refis accounting for roughly 61% of fundings this year, a figure that includes HARP.
According to figures compiled by National Mortgage News and the Quarterly Data Report, lenders funded just over $1.4 trillion in loans last year, 67% of which were refis.
If MBA's number becomes a reality that means originations will fall by about 21%, which might cause some shops to merge or cut staff.
But MBA is not alone in the prognostication game. Freddie Mac is a bit more optimistic than the trade group, forecasting residential fundings of $1.25 trillion this year. (NMN, which operates a small data collection group, estimates that in 2012 originations could top $1.2 trillion.)
Traditionally, the key drivers of loan production have always been interest rates and employment. With the national unemployment rate continuing to fall economists believe that consumers will once again contemplate the unthinkable—buying a home. Interest rates, of course, are at or near historic lows.
Although renting is considered to be “in,” many apartment rents are rising, so much so that in certain markets it's becoming cheaper to own than to rent.
“Rents are going up,” said Brinkmann, pointing to a recent study that found “rent-to-renew” contracts at the lowest level since the fourth quarter of 2008, which indicates some tenants might soon be testing the waters of homeownership.
The MBA economist also notes that strong stock gains of the past year might entice some investors to cash out of their gains and use that money to buy or move up.
Meanwhile, a $1.2 trillion year would be considered decent, but by historical standards it would be the industry's worst showing since 1999 when $1.214 trillion of loans were funded.
The industry's best year ever came in 2003 when a stunning $3.9 trillion of loans were written, driven in part by one of the largest refi booms in history.
It was also in 2003 that subprime and alt-A lenders began to make huge inroads in mortgage banking, relaxing credit standards, and extending loans to consumers who should've never received a mortgage in the first place.
Lastly, one reason some lenders are optimistic has to do with Bank of America. With the megabank cutting back in originations and letting its top producers walk out the door, other lenders are benefiting. In short, their volumes are growing because they're serving B of A's former clients.
