The Mortgage Bankers Association has revised its forecast for this year's originations and now expects a total of $2.6 trillion, its chief economist said Tuesday.
That would be 4% more than last year's record volume. As recently as January, the trade group was calling for 2003 production to drop to $1.77 trillion.
Speaking to reporters at the group's annual national secondary market conference in New York, Doug Duncan said he based his prediction on interest rates.
A 30-year fixed-rate mortgage right now carries a rate of 5.9%, near an all-time low, according to Mr. Duncan, who expects that rate to rise to 6.3% by yearend as the economy improves slightly.
The industry posted first-quarter origination volume of $800 billion - 41% more than it did in the same period last year - and, because of low rates, he said that he expects production to continue to rise this quarter.
However, he also said he expects originations to start dropping in the third quarter and to fall to $400 million for the fourth quarter as rates rise.
Refinancings are extremely sensitive to rate changes, Mr. Duncan said. "Just in the last week a 20-basis-point rise in rates cut into our refi survey."
In a separate panel discussion at the conference, Dale Westhoff, a senior managing director and mortgage analyst at Bear, Stearns & Co., said that less than 25% of all 30-year mortgages outstanding have coupons above 6.25%.
Mr. Duncan says that statistic backs up his forecast for a drop in originations during the fourth quarter, because refinancings represent the bulk of originations.
While the year is expected to be a good one for mortgage bankers, the origination slowdown that will occur in the third and fourth quarters will likely necessitate some layoffs, Mr. Duncan said. Most of the people who will lose their jobs will be temporary employees who have been hired to handle the tremendous amount of loans originated during the current refi boom, he said.
"Companies learned from the 1998 refi boom that they have to act rapidly to cut costs," so much of the new hires over the last couple years have been temporary administrative and processing employees in lenders' back offices, he said.
Regarding the broader economy, Mr. Duncan said that the "key to the future" is employment levels, which have been dropping, "but I expect to see rise" as the year progresses.
He said he expects half of President Bush's $300 billion budget request, which is currently wending its way through Congress, to be appropriated by August. That will help to boost the economy, he said.
Another upbeat prediction Mr. Duncan gave: Home sales, which last year "hit an all-time record, should be flat" for the year, instead of declining. "The first-quarter numbers were higher than the first quarter of 2002, but I expect in the fourth quarter they will be lower than last year, because of rates rising."
