Mortgage Market Expected to Remain Strong in 2020
Written By: Joel Palmer, Op-Ed Writer
The mortgage industry enjoyed a favorable market for both purchases and originations, as well as positive regulatory changes.
What can mortgage processors and underwriters expect in 2020? Here are what industry experts are predicting.
Purchase mortgages expected to rise; refinances to fall Freddie Mac is forecasting $1.33 trillion worth of mortgage originations in 2020, which would be a slight increase over the $1.26 trillion projected for 2019. Freddie projects $1.377 trillion in 2021.
Freddie expects refinance originations to be $846 billion in 2019 before slowing to $650 billion and $475 billion in 2020 and 2021, respectively. Freddie projects overall home sales of 6 million in 2019, 6.2 million in 2020 and 6.3 million in 2021.
Fannie Mae’s forecast for purchase mortgage originations in 2019 has held steady at $1.28 trillion. But an upward revision of its new home sales outlook led Fannie to increase its forecast of 2020 purchase mortgage originations by $74 billion to $1.37 trillion.
Fannie expects total originations to grow 21.6 percent in 2019 to $2.15 trillion before declining by 4.8 percent in 2020 to $2.04 trillion, with the refinance share dropping from 40 percent in 2019 to 33 percent in 2020.
Fannie also expect single-family housing starts to grow by almost 10 percent in 2020 and to top 1 million new homes in 2021. This is still well below the annual peak of about 1.7 million single-family starts seen in 2005. Fannie said it will likely take several years for new construction to address the existing pent-up demand for housing. Mortgage rates expected to stay low.
Freddie has projected the average 30-year fixed rate to average 3.8 percent over the next two years. Fannie Mae, the Mortgage Bankers Association and the National Association of Realtors are forecasting the 30-year rate to average between 3.6 and 3.85 percent next year.
It may be a little easier to issue mortgages.
Although lenders don’t anticipate easing underwriting credit standards in the next few months, recent regulatory changes will somewhat help mortgage underwriters and processors.
First, FHA raised mortgage limits for 2020. The 2020 limit for for single family properties will range from $331,760 in low-cost areas to $765,600 in high-cost areas. The low-cost area limit is set at 65 percent of the national conforming limit of $510,400. High-cost area limits are set at 150 percent of the conforming limit.
Second, a new federal rule was adopted in 2019 that increases the appraisal threshold for certain residential real estate transaction from $250,000 to $400,000. The rule was changed largely because the exemption threshold had not been increased in 25 years, during which home values have appreciated considerably.
For transactions exempted from the appraisal requirement, the final rule requires institutions to obtain an evaluation to provide an estimate of the market value of real estate collateral. The rule states evaluations must be “consistent with safe and sound banking practices.” Even so, evaluations are generally less burdensome than appraisals and have been required since the 1990s.
What progress will be made on GSE reform?
There were several developments toward GSE reform in 2019, yet it’s doubtful that Fannie and Freddie will emerge from conservatorship in 2020.
In September, the Treasury Department released its long-awaited plan to reform the housing finance system.
A month later, the Treasury Department and the Federal Housing Finance Agency (FHFA) announced that Fannie and Freddie can retain earnings in excess of the $3 billion capital reserves currently permitted by their preferred stock purchase agreements (PSPAs). Under the modifications, Fannie can retain up to $25 billion in capital, while Freddie will be permitted to maintain capital reserves of $20 billion.
The Trump Administration is not expected to take action prior to the November election, and whatever progress is made following the election will hinge on who wins the election.
About the Author
As an NAMU® Opinion Editorial Contributor, Joel Palmer is a freelance writer who spent 10 years as a business and financial reporter and another 10 years in marketing for the insurance and financial services industries. He regularly writes about the mortgage industry, as well as residential and commercial real estate, investments, and retirement income planning. He has also ghostwritten books on starting a business, marketing, and retirement income planning.
