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Purchase Financing Forecast Lowered

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An increase in expected refinance business this year and next year was offset by lowered expectations for purchase financing. The outlook for government originations fell.

Mortgage originators are projected to collectively generate production of $390 billion in the second quarter, $320 billion during the following three months and $240 billion in the final quarter of 2014.

That overall outlook was no different than last month’s forecast. But within those numbers, there were changes in expected refinancing and purchase financing activity.

Based on refinance share predicted in Freddie Mac’s June 2014 Economic and Housing Market Outlook, refinance production is expected to fall from $164 billion in the current quarter to $109 billion in the third quarter and $82 billion in the final three months of this year.

That was up from last month, when the secondary lender projected $156 billion in second-quarter refinancings, $106 billion three months later and $79 billion in the fourth quarter.

Offsetting the increased refinance forecast was a lower outlook for purchases. Freddie reduced its second-quarter expectations for purchase production to $226 billion from $234 billion, while the third-quarter projection fell to $211 billion from $214 billion, and the fourth-quarter forecast was cut to $158 billion from $161 billion.

For all of 2014, Freddie has total industry-wide originations coming in at $1.250 trillion, while next year’s forecast is at $1.125 trillion. Both projections were unchanged from the prior outlook.

But this year’s refinance forecast was raised to $0.500 trillion from $0.488 trillion in the previous report, and the 2015 refinance outlook was lifted to $0.259 trillion from $0.225 trillion.

Refinance share is expected to fall from 40 percent in 2014 to just 23 percent next year.

The projection for purchase production was lowered to $0.750 trillion for this year from $0.763 trillion forecasted in May. The 2015 forecast for purchase production dropped to $0.866 trillion from $0.900 trillion.

Estimated government mortgage share for 2013 slipped to 18.44 percent from the prior forecast of 18.55 percent. Federal Housing Administration and Department of Veterans Affairs loan share for this year fell to 19.36 percent from 20.00 percent, and there was no change in next year’s expected 20.00 percent government share.

Adjustable-rate mortgages are expected to account for 12 percent of 2014 production and 15 percent of 2015 activity.

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