Mortgage Originations Ready to Explode

Mortgage originations may soon hit a whopping $3.1 trillion, mostly because of a huge surge in mortgage refinances that are expected to continue to boom. With mortgage rates at all-time lows, millions of savvy American homeowners are taking full advantage of them.

The Mortgage Bankers Association now reports that the Federal Reserve's plan to buy up more than a trillion dollars' worth of mortgage assets from the credit markets is actually working.  As mortgage rates plummet to levels that haven't been seen in decades, the number of mortgage originations is soaring.

With house prices at bargain basement levels, Americans have been anxious to get back into the real estate market. They have, however, been naturally skeptical and cautiously tentative as the economy struggles with a global crisis. But a concerted government effort is starting to pay dividends as mortgage rates are dropping, banks are easing credit restrictions, and lenders are seeing a big spike in mortgage refinancing.

New homebuyers hopping

New buyers now have 8,000 new reasons to take the leap, because President Obama has created an emergency tax benefit worth $8,000. The savings are available to so-called new homebuyers, which the IRS defines as those people who haven't owned a home within the past three years. Lots of people are in that category these days, even if they used to own a home before the markets peaked.  This special tax break doesn't have to be repaid like some of the other tax incentives proposed last year.  As tax season coincides with the arrival of springtime-which is the busiest time of year for real estate sales-motivated buyers are starting to shop with real determination to purchase a house and save some cash.

Mortgage refinance explosion

Meanwhile, the volume of mortgage refinances is also going up significantly, and is now at a level that hasn't been seen in about five years. Millions of American homeowners are in a rush to convert their existing loans into more affordable ones at historically cheap mortgage rates before those rates begin to climb back up again, which will likely be soon.

Mortgage originations create busy underwriters

The increased number of mortgage originations and mortgage refinances has caught many lenders off guard and understaffed. Stringent lender guidelines and regulations are essential in order to avoid another mortgage crisis; but with that kind of oversight comes painstaking underwriting that takes time and is labor intensive. Technological enhancements and upgrades are being implemented at many major lending institutions to help speed up the underwriting process, and mortgage companies are hiring more staff. Bank of America CEO Ken Lewis told reporters that his bank, for example, recently added 5,000 new employees just to handle the renewed activity. 

Officials at Fannie Mae also agree that the mortgage business is robust, and they anticipate that the volume of mortgage refinances will continue to grow as more homeowners find out that they're eligible for attractive loan modifications under President Obama's new Making Home Affordable program.