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Refi Outlook Down as Purchase, Government Forecast Up

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Expectations for refinance originations were lowered for both 2013 and 2014, but increased projections for purchase production made up the difference. The annual outlook for government business improved.

Total home loan originations are expected to fall from $400 billion in the third quarter to $350 billion in the final three months of this year, the same as expected last month.

Overall production is then expected to climb to $383 billion in the first quarter of 2014 and $453 billion in the second quarter — also the same as last month’s projection.

Based on expected refinance share from Freddie Mac, which delivered the forecast Tuesday, the third-quarter 2013 refinance projection was increased to $228 billion from $220 billion, while the fourth-quarter refinance outlook fell to $133 billion from $140 billion. The refinance prediction for the first three months of next year slipped to $169 billion from $172 billion.

Freddie cut its third-quarter estimate of purchase financing to $172 billion from $180 billion, but the fourth-quarter projection rose to $217 billion from $210 billion. The first-quarter 2014 purchase projection inched up to $214 billion from $211 billion.

The origination of loans insured by the Federal Housing Administration or guaranteed by the Department of Veterans Affairs is expected to fall from $91 billion in the third quarter to $70 billion in the final quarter of 2013 then turn higher to $77 billion in the first quarter of next year. In Freddie’s prior outlook, government production was expected to fall from $85 billion to $75 billion then inch up to $77 billion during the first three months of 2014.

Looking at annual activity, 2013 total mortgage originations are forecasted to come in at $1.850 trillion then decline to $1.410 trillion in 2014. Last month’s 2013 outlook was unchanged, but the 2014 number was raised from $1.400 trillion.

Freddie put 2015 total production at $1.190 trillion.

Refinances are expected to account for $1.110 trillion of this year’s activity, $0.564 billion of next year’s total and $0.238 trillion of the 2015 forecast. The October outlook had 2013 refinances at $1.166 trillion and 2014 at $0.574 trillion.

Refinance share is forecasted to fall from 60 percent in 2013 to 40 percent next year and 20 percent in 2015.

Purchase financing will grow from $0.740 trillion this year to $0.846 trillion next year and $0.952 trillion in 2015, according to the outlook. The purchase outlook improved from last month, when $0.685 trillion was projected for 2013 and $0.826 trillion was expected for 2014.

Government financing volume was raised to $0.370 trillion for this year versus the $0.359 trillion projected last month, while the 2014 outlook inched up to $0.282 trillion from $0.280 trillion. The 2015 government forecast is $0.238 trillion.

FHA and VA share, meanwhile, is forecasted to be exactly 20 percent this year, next year and the following year.

Freddie predicts that adjustable-rate mortgages will account for 9 percent of 2013 production, 12 percent of 2014 fundings and 15 percent of 2015 originations.

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