Mortgage originators need to disregard conventional wisdom and prepare for a refinance market this year as the 10-year Treasury yield could come close to its lowest level ever, said Barry Habib, the chief executive of MBS Highway.
Habib spoke at the Regional Conference of Mortgage Bankers Associations on Wednesday before the Federal Reserve made its announcement that it was not raising rates. At the session he said he did not expect the Fed to act now, but he was predicting it could raise short-term rates in June.
If that happened, spooked stock investors would pull their money from the equity market and put it into bonds like the 10-year Treasury. The rate on the 10-year Treasury would decline as a result, and since that instrument affects pricing of the 30-year fixed-rate mortgage, that rate would decline as well.
Habib said rates on the 30-year mortgage could then fall to as low as 3%.
It's quite a contrarian stance. The most recent Mortgage Bankers Association forecast calls for a rise in interest rates and a drop in refinancing volume that will be larger than an expected increase in purchase volume.
Habib made a similarly unorthodox projection at last year's Regional Conference about the mortgage market remaining a refinance-driven business in 2015. That didn't quite pan out, as the 10-year Treasury yield stayed above 2%, the 30-year mortgage rate was in the high-3% range and refis accounted for less than half of 2015 originations, according to Mortgage Bankers Association data.
His firm, MBS Highway, is a provider of real-time stock and bond market information and analytics for lenders.