Home loan originations will drop by 15% this year, as loans to purchase homes rise but fail to offset dwindling refinances, according to the Mortgage Bankers Association's latest forecast.

Annual origination volume could fall to $1.6 trillion from last year's almost $1.9 trillion due to a rise in higher long-term mortgage rates that will put pressure on both depository and non-depository lenders.

"It's going to be a tougher space regardless of what type of institution you are," MBA Chief Economist Michael Fratantoni told attendees at the group's national technology conference in Chicago on Tuesday.

In addition to forecasting generally higher rates, he warned lenders to prepare in particular for a rate spike if the Federal Reserve announces a plan to allow its mortgage-backed securities portfolio to run off.

The Fed purchased the MBS in the wake of the Great Recession to bolster the economy, and it will likely allow these securities to run off soon now that economic indicators are stronger. As soon as the Fed announces such a plan, it could put pressure on MBS prices that will result in higher rates.

"I think the market is going to react when the Fed comes out with a formal plan for how to do this," said Fratantoni.

The result of higher rates for lenders could be that refinancing — which has constituted almost half of total origination volume in the past year — could decline significantly. A stronger economy also could bolster purchase volume, but not enough to make up for the decline in refis, Fratantoni said.

The MBA forecasts that refinancing will total $496 billion in 2017, down from $901 billion in 2016, while purchase volume climbs to $1.104 trillion this year from $990 billion last year.

While the forecast calls for a stronger economy and some favorable household formation that could bolster lending to homebuyers, the purchase market faces other constraints that include a limited supply of homes.

"Inventories are just so tight and particularly at the entry level," Fratantoni said. "We're not building enough to deal with the households that are being added to the economy."

As a result of the anticipated decline in volume, mortgage lenders' interest in technology has been focused largely on cost-saving measures, he said.

Lenders also are interested in ensuring that their customer-facing automation is strong enough to contend with growing competition.

"Today it's a choice" to offer that technology, Fratantoni said. But in 18 months it could be essential.

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