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Second Quarter Could Be Best for a While

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An expected second-quarter bump in mortgage originations could make it the best quarter for years to come as the refinance wave becomes a distant memory. Prior-year estimates in home loan production have been revised down.

Residential lenders are expected to originate $350 billion in mortgages during the first quarter of this year.

That would put the U.S. mortgage industry at the same level of loan production as in the fourth quarter of last year.

Secondary lender Freddie Mac made the prediction in its February 2014 Economic and Housing Market Outlook.

Business is then expected to jump to $425 billion in the second quarter. After that, mortgage originations are expected to be less than $400 billion each quarter through at least the end of 2015.

Based on Freddie’s refinance share projections, refinance business is expected to fall from $179 billion in the final three months of 2013 to $154 billion in the first quarter then bounce back up to $170 billion during the following three-month period.

Purchase originations are expected to climb from $172 billion in the fourth-quarter 2013 to $196 billion this quarter and $255 billion in the second quarter.

Loans insured by the Federal Housing Administration or guaranteed by the Department of Veterans Affairs are expected to amount to $70 billion in the first quarter, more than $61 billion in the prior period. Government mortgage production is expected to jump to $85 billion in the second quarter.

For all of 2014, Freddie predicts that total mortgage originations will amount to $1.350 trillion. The outlook for 2015 was lowered to $1.180 trillion from $1.190 trillion forecasted in the January outlook.

Freddie revised down its estimates of annual originations to $1.667 trillion for 2010, $1.492 trillion for 2011 and $2.122 trillion for 2012.

Estimated 2013 refinance volume was raised to $1.159 trillion from $1.140 trillion in Freddie’s previous outlook. This year’s refinance forecast was left at $0.513 trillion, but next year’s projection was trimmed to $0.236 trillion from $0.238 trillion.

Refinance share is expected to plunge from 61 percent last year to 38 percent in 2014 then sink further to 20 percent in 2015.

The McLean, Va.-based company reduced 2013 purchase financing to $0.741 trillion from $0.760 trillion estimated in last month’s forecast. The $0.837 trillion expected this year was left unchanged, and the 2015 purchase projection was lowered to $0.944 trillion from $0.952 trillion.

FHA and VA originations are expected to be $0.270 trillion during all of 2014, plunging from $0.357 trillion a year earlier. A further decline next year has the 2015 government forecast at $0.248 trillion.

Government share of U.S. originations will go from 18.8 percent in 2013 to 20.0 percent this year and 21.0 percent next year.

Freddie reduced its estimates of government mortgage share for the years 2010 through 2013 and raised it for 2015.

Freddie expects adjustable-rate mortgage share to rise from 9 percent last year to 12 percent this year and 15 percent in 2015.

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