Reflecting on the
The first is Paul Revere, riding to warn originators “interest rate rises are coming! Interest rate rises are coming.”
The next is Chicken Little, along the lines of interest rates are going to rise and the sky is going to fall; actually for those of you who haven’t prepared with this inevitability, the roof will probably cave in on your business.
Finally there is the boy who cried wolf. We have heard this prediction for several years now. However, like the unfortunate end to that story, those who are not taking the warning seriously will be among the casualties when the rates do rise.
Being prepared for rates to rise means you have a business plan in place to capture purchase loans−today. It is highly unlikely you will be successful if your business plan is just doing the same thing that worked to get refinancings, just waiting for the phone to ring.
Some of the specifics Brinkmann and Fratantoni offered include that the refinance share of business, currently at 74%, will be down to 42% at the end of this year and 32% at the end of next. And those numbers will be inflated by the Home Affordable Refinance program.
They project the 30-year fixed rate mortgage to be in the area of 4.1% (the number is based on what MBA releases in its weekly application survey) by 4Q13 and 4.6% one year from now. The spreads between the 10-year Treasury and the 30-year FRM, at 150 basis points at the end of 1Q13, will be at 200 bps one year from now.
Their tipping point for when refinancings go away is in 3Q13. In 2Q13, refi volume is predicted to be at $289 million; the next quarter it crashes to $136 million. For that quarter, purchase volume will regain the larger percentage of applications and hit $160 million (down just $3 million from the current quarter).
Are you ready to deal with a purchase market as soon as this summer? If the plans are not in motion now, it might be too late to avoid the pain.
