Morning Report: MBA raises its origination forecast

Vital Statistics:

S&P futures3209-25.6
Oil (WTI)39.87-0.16
10 year government bond yield 0.67%
30 year fixed rate mortgage 2.94%

Stocks are lower after yesterday’s sell-off. Bonds and MBS are flat.

Initial Jobless Claims came in at 870k. This is worrying since the prior justification of high numbers was attributed to catch-up in state unemployment systems. You would think that would be finished by now. That said, retailers are beginning to pay rent again, so perhaps things are getting better.

The MBA raised its forecast for 2020 origination to $3 trillion. We saw that Black Knight estimated that 19.3 million “high quality” refinances are out there. They define “high quality” as being able to save 0.75% in rate, at least 20% equity and a FICO over 720. Assuming an average mortgage amount of $350k (which is probably a touch conservative), then that works out to be $6.8 trillion. If you take away these constraints, roughly 3/4 of the US mortgage market is in-the-money.

The big question for this however is the adverse market fee. Since 50 basis points roughly translates into maybe 0.17% in rate, the universe will shrink somewhat. Still, the most likely outcome is that margins will fall and we should assume that 3/4 of the US mortgage market will find it makes financial sense to refinance their homes as long as rates stay here.

Remote working is driving demand for renovation loans. I suspect that rising real estate prices will also begin to affect the move-up homebuyer, and they will choose to renovate versus move.


Author: Brent Nyitray

In the physical sciences, knowledge is cumulative. In the financial markets, it is cyclical

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