The Scotsman Guide - Victor Whitman - 04 November 2016
The mortgage industry has turned in a strong performance in 2016 so far.
Through the first three quarters of the year ending Sept. 30, the volumes and counts of the nation’s most popular home-loan types — mortgages purchased by Fannie Mae and Freddie Mac — were running ahead of the pace set in 2015, according to an analysis by Scotsman Guide News based on the financial reports released this week by the two government-sponsored enterprises (GSEs).
Through the first nine-months of 2016, Freddie and Fannie’s loan counts were up by 2.2 percent, compared to the same period a year earlier, for a cumulative total in 2016 of 2.9 million loans. Individually, Fannie's counts were up year-to-date, while Freddie's have declined because of a weaker first and second quarter. Freddie's third quarter loan counts were up by more than 12 percent (485,000) compared to the same quarter a year ago (432,000).
The loan volume — the outstanding balance of mortgages at the time the loans were purchased by the GSEs — totaled $678.8 billion year-to-date through September, up nearly 6 percent compared to the same period in 2015 ($640.8 billion).
Fannie and Freddie do not originate loans, but purchase and securitize roughly half of all home-purchase loans and refinances in the country, making their activity a good gauge of mortgage demand and origination trends.
The numbers tell a story of a market in transition, with home-purchase loans on the rise.
Through the first three quarters of this year, the home-purchase loan counts for Fannie and Freddie combined were up 12 percent (1.37 million loans) compared to 2015 (1.22 million). Combined refinance counts for the two GSEs were down 5 percent in 2016 (1.58million) from 2015 (1.67 million).
Global events over the summer that drove down interest rates to near historic lows, particularly Britain’s Brexit decision in late June to eventually leave the European Union, have kept refinancing in play longer than expected. Despite the dip in the GSEs' refi counts this year, refinancing numbers are much stronger in 2016 than analysts anticipated at the beginning of the year.
Notably, Fannie Mae purchased more refinance loans in the first three quarters of 2016 (942,000) than in the same period in 2015 (939,000). Freddie’s refinancing counts were significantly lower through the first three quarters of 2016 (614,000) than during the same period in 2015 (728,000).
In a call with reporters this week, however, Freddie’s chief executive officer, Donald Layton, said Freddie saw a surge in refinancing activity in the third quarter, after the Brexit vote.
“In fact, resurging refi volume, driven by post-Brexit declines in mortgage rates, helped make it our biggest quarter since late 2013,” Layton told reporters. Freddie’s refinance counts were up nearly 14 percent in the third quarter (255,000) compared to same quarter of 2015 (224,000).
Analysts have predicted that purchase volume will gain dominance over the market next year, however.
In its latest forecast, the Mortgage Bankers Association (MBA) has predicted that refinance volume will fall 40 percent to $529 billion in 2017, and home-purchase loan volume will rise 11 percent to $1.1 trillion. This includes Fannie and Freddie loans, and other major government-backed and private-label loans.
MBA is forecasting that overall originations will fall next year to $1.63 trillion, down from the projected full-year 2016 level of $1.89 trillion.