Stock Groups

Mortgage originations will drop 33% in 2022 as interest rates rise

[ad_1]

While constructing a new house in Petaluma California, a worker hauls lumber.

Getty Images

According to the Mortgage Bankers Association, rising interest rates will cause a dramatic drop in refinance demand by 2022. This means that there will be less business for mortgage banksers. The total origination volume is expected to drop by 33%, or $2.59 trillion.

MBA economists estimate that the 30-year fixed rate will go up to 4%. That is almost a whole percentage point higher than its current level.

This will lead to a drop of 62% in the refinance originations, dropping to $860 billion. This will increase the 14% expected decline to 2.26 trillion in 2021

According to Michael Fratantoni (MBA’s chief economist), “The economy rebounded and the labor market recovered in 2021 but overall growth was below expectations due to stubborn supply chain problems that fueled faster inflation and slowed consumers spending and presented challenges in filling record-breaking job openings.” With inflation rising and unemployment rates dropping quickly, the Federal Reserve will taper asset purchases before the end this year. It will also raise short-term interest rates until the end 2022. 

The originations of funds for buying homes are predicted to grow 9% and reach a new high of $1.73 billion in 2022.

This will be a significant change from 2020’s record profits. In that year, interest rates fell to new lows while homebuyer demand rose due to the pandemic. This will lead to increased competition between lenders.

Marina Walsh, MBA’s vice-president of industry analysis said that many lenders will be more dependent on their servicing businesses to reach financial goals. The servicing outlook today is complicated due to the expiration many COVID-19-related Forbearances, and the necessity of placing borrowers in post-forbearance workouts.

Walsh said that servicing costs could rise because servicers try to satisfy the requirements of investors and borrowers.

[ad_2]