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Mortgage Production Peaking

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Residential loan originations will climb in 2012 to their highest levels in three years then retreat each of the following two years. Quarterly refinance volume peaked in the third quarter, while purchase originations are forecasted to peak this quarter.

Home-loan production by all U.S. lenders climbed from $470 billion in the second quarter to $550 billion in the third quarter. Mortgage business is expected to ease in the fourth quarter to $530 billion.

Originations are then expected to tumble to $440 billion in the first quarter of 2013 and drop to $350 billion by the final quarter of the year.

Based on the November 2012 Economic and Housing Market Outlook from Freddie Mac, third-quarter 2012 production is expected to be the biggest during all of last year, this year and next year.

Refinance production is expected to decline from the third quarter’s $418 billion — the strongest quarter this year and next year — to $350 billion during the final three months of 2012. By the fourth-quarter 2013, refinance volume is expected to fall to $175 billion.

Refinance share is predicted to tumble from more than three-quarters to just two-thirds in the fourth quarter and about that same share for the following quarter.

Purchase financing is expected to go from the third quarter’s $132 billion to $180 billion in the fourth quarter — the biggest quarter in 2012 and 2013. Purchase activity is projected to drop to $145 billion in the first quarter of next year then climb to $175 billion by the final quarter.

Freddie might increase its outlook for purchase financing based on a positive stream of metrics that has recently indicated improved loan performance and a strengthening housing market.

Loans insured by the Federal Housing Administration or guaranteed by the Department of Veterans Affairs are expected to total $106 billion in the fourth quarter.

Freddie reports that third-quarter government volume was $100 billion. Mortgage Daily data indicates that $63.6 billion in mortgages were endorsed by the FHA in the third quarter — indicating that VA originations totaled around $36.4 billion.

The estimate of third quarter government volume was cut by $16 billion from Freddie’s October outlook, while the conventional projection was raised $16 billion.

The share of borrowers who opt for an adjustable-rate mortgage is expected to go from 8 percent in the third quarter to 11 percent in the fourth quarter then expand by 1 percentage point each quarter next year.

Annual originations, which reached an estimated $1.50 trillion last year, are expected to fall from $2.0 trillion in 2012 to $1.65 trillion next year. By 2014, Freddie has mortgage production falling to $1.20 trillion.

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