Sharp Drop in Refinancing Expected

Mortgage lending is expected to slow significantly in 2013, with refinancing volume dropping by one-third compared to this year, the Mortgage Bankers Association (MBA) is predicting.

The MBA forecasts that mortgage lending will total $1.3 trillion in 2013, down from their current prediction of $1.7 trillion for 2012. The decline is expected to be wholly due to a sharp drop in refinancing, which is expected to total $785 billion in loans, down from $1.2 trillion this year.

On the positive side, 30-year mortgage rates are expected to remain below 4 percent through the middle of the year, due in large part to the Federal Reserve’s third round of qualitative easing, which has the Fed making additional purchases of mortgage securities to keep rates low.

Home purchase loans expected to rise

That’s expected to contribute to a healthy increase in mortgage volume for home purchases, which are forecast to rise to $585 billion in 2013, up from a projected $503 billion this year, with annual improvements seen in each quarter.

“The increase in purchase volumes will be driven by continued modest growth in the economy, an increase in owner-occupied sales financed with mortgages as opposed to cash purchases by investors, an increase in new home sales and a small increase in average home prices,” said Jay Brinkmann, MBA chief economist. “This assumes that changes in the regulatory environment during 2013 are not unduly disruptive in terms of their constraints on available credit, and FHA and/or Fannie Mae/Freddie Mac do not notably tighten their credit policies. “

Mortgage refinance activity is expected to be concentrated in the first half of the year, as borrowers take advantage of the drop in rates triggered by the Fed’s action, and then fall some sharply after that.

Modest economic growth predicted

Brinkmann said the forecast is based on expectations of slightly stronger, yet still modest, economic growth in 2013, with GDP rising by 2 percent compared to 1.6 percent this year. That prediction is based on the MBA’s expectation of the biggest annual increase in home purchases since 1992, as well as small gains in consumer spending and business investment.

He noted that forecast could be undermined by any of several potential threats facing the economy, in particular a failure by Congress and the Administration to resolve the “fiscal cliff” of automatic tax increases and spending cuts due to take effect on Jan. 1. Others include the effects of the debt crisis in southern Europe and the ongoing slowdown in the Chinese economy, he said.

First published on MortgageLoan.com at: http://www.mortgageloan.com/sharp-drop-refinancing-expected-9274