The days of favorable mortgage interest rates and accompanying loan modification options may be nearing an end.
According to the recently released Mortgage Finance Forecast from the Mortgage Bankers Association, home lending is expected to fall by 32 percent in 2014, based primarily on the anticipated rise on mortgage rates. That anticipation is based on the presumed inevitability of long-awaited, frequently delayed tapering of the Federal Reserve's $85 billion-per-month bond-buying program, which has held rates down to manageable levels throughout 2013.
Times and trends changing
The MBA forecast $1.19 trillion in newly underwritten mortgages for the upcoming year, compared with the projected year-end total of $1.75 trillion for this year. Purchase loans are expected to rise by 9 percent, while refinance originations are forecast to decline by more than 50 percent - a figure directly correlated with the assumed fall in interest rates.
Among the projections contained in the finance forecast for 2014 are that the average interest on a 30-year fixed-rate mortgage will climb to more than 5 percent by the year's third quarter. Considering that the Fed's quantitative easing has kept rates around 4 percent or slightly higher - low by historical standards - and that during first quarter 2013 they averaged 3.5 percent, that represents a significant swing for prospective homebuyers or those looking to refinance their mortgage. Industry analysts have been emphasizing over the past year that the market has been offering prime opportunities to buy, and those who haven't yet capitalized may soon find they've missed out.
For lenders, the repercussions of any reduced-easing plans are clear. The less federal money being pumped into the mortgage market, the more stable the economy will have become as a whole - at least in theory. Many in the industry have made clear their desires to shift more money from the government-sponsored enterprises Fannie Mae and Freddie Mac into the private market. Such a move by the Fed would likely be followed by the transitioning of that capital, albeit at a continued, gradual pace.
Among the other trends expected to die down in 2014 are those of all-cash and large-scale investor purchases, which have been seen in mass during 2013 and are mostly the byproduct of low interest rates and large inventories of distressed properties ripe for rehabilitation. As prices have steadily risen throughout the country and much of that inventory has been swallowed up, those trends have predictably plateaued. Like other phenomena, those sorts of transactions may turn out to be uniquely 2013.