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Outlook Improves for Home Purchase Financing

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Last year’s estimate of loan originations to finance home purchases has been revised up by more than $100 billion. This year’s projected purchase production was also pushed up by more than $100 billion, as was next year’s purchase outlook. Improved purchase expectations offset a weaker forecast for refinances.

Last month’s outlook had total residential originations by all U.S. lenders at $1.080 trillion for the second half of last year.

Now that estimated total has been revised up to $1.140 trillion thanks mostly to an upward revision to estimated refinance originations.

It was a similar revision for the first-quarter 2013 forecast, which was raised to $540 billion in Freddie Mac’s June forecast from last month’s expectation of $500 billion.

Freddie has total mortgage production rising to $560 billion in the current quarter then tumbling to $400 billion in the third quarter and to $300 billion in the fourth quarter.

The forecast might have been more bleak if it weren’t for the improved outlook for purchase production.

Based on the refinance share in Freddie’s report, the first-quarter purchase financing estimate was raised to $135 billion from $105 billion forecasted last month, while the prediction for second-quarter purchase volume increased to $196 billion from $159 billion, and the third-quarter projection increased to $180 billion from $147 billion.

The gain in purchase business was directly offset by a more dismal refinance forecast.

Although Freddie raised its first-quarter refinance estimate to $405 billion from its previous forecast of $395 billion, the second-quarter outlook slipped to $364 billion from $371 billion, the third-quarter projection fell to $220 billion from $273 billion, and the fourth-quarter forecast was cut to $135 billion from $210 billion.

First-quarter refinance share was reduced to 75 percent from the previous projection of 79 percent predicted last month. The second-quarter expected share fell to less than two-thirds from 70 percent, and the reduction to forecasted refinance share was even more severe for the second half.

Freddie expects the Federal Housing Administration to insure 18.8 percent of second-quarter business, off from the 18.9 percent projected last month. The third-quarter FHA share forecast increased to 20.0 percent from 19.1 percent, and the fourth-quarter share jumped to 21.7 percent from 18.6 percent.

Freddie adjusted its estimate of 2012 total production up to $2.100 trillion from $2.000 trillion in the previous report.

There was no change in the $1.800 trillion expected this year or the $1.300 trillion forecasted for 2014.

Freddie trimmed its estimate of refinance originations for 2012 to $1.491 trillion from $1.500 trillion previously estimated.

This year’s refinance forecast tumbled to $1.080 trillion from $1.242 trillion, while next year’s forecast calls for $0.520 trillion versus the previously predicted $0.650 trillion.

Refinance share is expected to move down from 71 percent in 2012 to 60 percent this year and just 40 percent in 2014.

But the estimate for last year’s home purchase financing shot up to $0.609 trillion from just $0.500 trillion in May’s outlook.

The 2013 outlook for purchase activity surged to $0.720 trillion from Freddie’s previous forecast of $0.558 trillion, and next year’s outlook was increased to $0.780 trillion from $0.650 trillion.

Freddie pushed up its estimate of FHA business to $0.380 trillion from $0.373 trillion in last month’s report. The 2013 FHA forecast was raised $0.003 billion to $0.350, and the 2014 FHA outlook was unchanged at $0.250 trillion.

The FHA share for 2012 was 18.10 percent, while Freddie predicts FHA share at 19.44 percent for this year and 19.23 percent for 2014.

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