The economists at the Mortgage Bankers Association believe the Federal Reserve will not start selling off the mortgage-backed securities it purchased any time soon.
Jay Brinkmann, chief economist, told a press briefing at the organization’s National Secondary Market Conference in New York that last year the Fed contributed $88 billion to the U.S. Treasury. Normally it makes a contribution reflecting the interest income on the investments. This contribution was an amount above that interest income, he said, and reflects the increased mark-to-market value of those securities.
A significant rise in interest rates would affect that valuation and the amount of funds to be transferred and that is why the Fed is not in a rush to sell, Brinkmann noted.
The economists are also predicting that spreads between the 10-year Treasury and the 30-year fixed-rate mortgage will start to widen again. In 1Q13, MBA data have the spreads at 150 basis points.
Brinkmann added that the higher guarantee fees for a Fannie Mae/Freddie Mac execution and higher loan origination costs would also result in wider spreads. The MBA predicts by 1Q14 the spreads will grow to 200 basis points.
The MBA is now predicting $1.5 trillion in mortgage originations this year, with $592 million in purchases and the rest in refinancings. Fratantoni said the extension of the Home Affordable Refinance Program has pushed some of the expected refis for this summer out through 2014. Thus there will be a more measured tapering off of HARP.
On the purchase side, Brinkmann noted that the biggest growth in rentals has been for single-family detached properties.
Furthermore, the largest decline in the owner-occupied housing rate has been in families with children. He said this bodes well for the purchase market for the next few years as this group makes the shift into homeownership.
Fratantoni noted that the inventory shortage has led the organization to revise its home price projections upward. Housing starts are increasing but not fast enough to meet current needs. The distressed inventory is declining. The main variable is when current homeowners decide to put their property on the market.
The MBA forecast does take into account the implementation of the qualified mortgage rule to the extent that it can right now.
