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Mortgage Bankers Lift Q3 Outlook Despite Rising Rates

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Interest rates on residential loans have increased six out of the last seven weeks. But that wasn’t enough to stop mortgage banking economists from raising their outlook for residential originations during the third quarter.

Secondary lender Freddie Mac reported Thursday in its Primary Mortgage Market Survey that after rising each week since May 2, thirty-year fixed rates were down 5 basis points for the week ended June 20. Treasury market activity suggests that rates are already headed higher.

Meanwhile, home loan production by U.S. residential lenders is projected to reach $494 billion in the current quarter.

The Mortgage Bankers Association, which made the prediction in its Mortgage Finance Forecast for June, left its second-quarter outlook from May intact.

But, despite quickly rising rates, MBA raised its projection for third-quarter activity to $352 billion from $296 billion in last month’s outlook

By the fourth quarter of this year, residential loan originations are expected to tumble — falling to a projected $244 billion. MBA scaled back its fourth-quarter forecast from $248 billion.

While the second-quarter refinance outlook was left at $331 billion, the third-quarter forecast increased to $172 billion from $136 billion, and the fourth-quarter projection increased to $112 billion from $104 billion.

Refinance share is expected to drop from just over two-thirds in the current period to just under half in the third quarter then dip to 46 percent in the final three months of 2013.

Like with refinances, MBA’s $163 billion second-quarter outlook for purchase financing was left unchanged.

The purchase forecast for the third quarter was increased to $180 billion from $160 billion, while the fourth quarter outlook was cut to $132 billion from $144 billion.

MBA lifted its forecast for all of 2013 to $1.572 trillion from the $1.520 trillion predicted last month.

Next year’s outlook was left at $1.091 trillion.

The full-year 2013 refinance forecast rose to $0.972 trillion from $0.928 trillion in the prior month’s report. But the 2014 refinance forecast was unchanged at $0.388 trillion.

Projected annual refinance activity reflects a 62 percent refinance share this year and a 36 percent share in 2014.

On the purchase side, the 2013 projection was increased to $0.600 trillion from $0.592 trillion, and the 2014 forecast was left at $0.703 trillion.

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