Mortgage Bankers Look Forward

Doug Duncan, MBA’s chief economist and senior vice president for research and business development, said interest rates for 30-year fixed rate mortgages are expected to rise to 6.5 percent by the end of this year and remain at that rate through 2007. Rates in 2008 are expected to decline slightly to 6.1 percent. Duncan said the predicted rate is a “good rate historically” but that the increase combined with the flat yield curve, a result of the spread between fixed and adjustable rate mortgages narrowing significantly over the past year, will slow housing activity. The share of adjustable rate mortgages has declined over the past year as well and is projected to decline through 2008.

Total residential mortgage production is expected to decline by 19.5 percent to $2.24 trillion in 2006, the fifth-highest level ever, from an estimate of $2.79 trillion in 2005, the third-highest level ever.

Residential mortgage originations for purchase loans will edge down slightly from an estimated $1.49 trillion in 2005 to $1.46 trillion in 2006. Purchase originations should decline further to $1.45 trillion in 2007. MBA says declining mortgage rates in 2008 should boost purchase originations to $1.54 trillion in 2008.

Residential refinance loans are expected to decline by nearly 40 percent from 2005 to $784 billion in 2006 and should decline further to $685 billion in 2007. MBA said lower rates in 2008 will spur refinance activity, increasing refinance originations to $886 billion. MBA predicts that refinance activity from 2006 onward will also benefit from a significant number of hybrid adjustable rate mortgages reaching their first rate reset and refinanced either into another ARM or fixed-rate product.

Regina Lowrie, MBA chairman, said that with the “tremendous increase” in mortgage fraud, fighting such fraud will be a key priority in 2006. The FBI reports that mortgage fraud has increased sevenfold in five years and that its caseload has increased more than 160 percent since 2003. Kurt Pfotenhauer, senior vice president for government affairs at MBA, said the organization will seek $6.25 million in dedicated funding for 30 new FBI field investigators, two new dedicated prosecutors at the Department of Justice to coordinate prosecution efforts with the U.S. Attorney’s offices, and $750,000 to support the operations of FBI Interagency Task Forces in the areas with the 15 highest concentrations of mortgage fraud.

At yesterday’s conference, Lowrie stressed the “critical need” of putting quality control measures into place before loans close in order to fight mortgage fraud. To that end, Lowrie, the owner of net branch company Gateway Funding Diversified Mortgage Services, said the company is making use of additional tools to detect fraud before loans go to closing.

She said the shrinking housing market is not expected to lead to a similar reduction in mortgage fraud because lenders will be looking to keep lending volumes up, and as a result, may not look too closely at home loans. She said the mortgage financing community will need to be more vigilant.

Mentioning a fraud summit held in Washington last March, Lowrie said the recommendations that came out of the summit are still important in quashing mortgage fraud. Lowrie explained that increased enforcement, better communication with the industry and the agencies that fight fraud as well as better communication inside the industry so as to prevent “bad actors” from moving from one company to the next are still important in eliminating fraud.