In Q3 2020 mortgage lenders had a per-loan expense of $7,452. This is up from $7,217 in the same quarter of 2019. Costs rose in the third quarter of 2020 over a cost of $6,566 in the second quarter of 2020 due to increased spending on hiring personnel to service unusually high demand caused by record low mortgage rates.
On the FHFA allowed the GSEs Fannie Mae and Freddie Mac to pass on a 50 basis point adverse market conditions fee for most mortgage refinances with a balance above $125,000. This fee was implemented to help protect the GSEs from an estimated $6 billion in COVID-19 related losses.
How Mortgage Rate Predictions Work
Almost nobody knows where mortgage rates will go in the future as the economy is inherently unpredictible. Black swans like the COVID-19 crisis are not easy to predict, though even more normal market conditions can be hard to predict. Many predictions are nothing more than a linear projection of the recent past onto the future.
The Federal Reserve raised rates 4 times in 2018 at their meetings in Federal Reserve Chairman Jerome Powell stated the central bank was “a long way” from neutral, hinting many more rate hikes would be coming.
With that trend and guidance in place, many mortgage industry veterans predicted mortgage rate would rise in 2019. Rates actually fell as the Federal Reserve delivered no more rate hikes and instead began loosening monetary policy.
2019 30-year Fixed Mortgage Rate Predictions
The NAHB saw 30-year fixed rates rising to 5.08% in 2020, when they anticipated ARMs to jump from 2019 estimates of 4.46% to 4.63%.
Despite being old data, the above predictions remain published on this page to show how significantly off major industry associations and leading experts at companies worth billions of dollars can be even in relatively benign environments. The average rate predicted for 2019 was 5.13% while the actual average rate throughout the year was 3.94%.
Industry experts can be that far off in relatively benign conditions. A true crisis can make accurate predictions nearly impossible.
Covid-19 Impact on Mortgage Rates
As the COVID-19 healthcare crisis swept the globe governments pushed lockdowns which contracted many economies at record rates. In the second quarter of 2020 the United States economy contracted at a record annualized rate of 31.4%.
As the global economy crashed the Federal Reserve’s FOMC cut interest rates twice, announced they would conduct unlimited quantitative easing, and gave forward guidance suggesting they were unlikely to lift rates through 2023.
As the Federal Reserve bought Treasury bonds and mortgage-backed securities while the economy cooled mortgage rates fell to new record online payday loans in IA lows. On the week of November 5th, the average 30-year fixed-rate fell to 2.78%. 2020 is expected to be a record year for mortgage originations with Fannie Mae predicting $4.1 trillion in originations and refinance loans contributing $2.7 to the total.
- Fannie Mae chief economist Doug Duncan believes the 30-year fixed rate will be 2.8% through 2021 and reach 2.9% in 2022.
- The Mortgage Bankers Asociation’s chief economist Mike Fratantoni believes the 30-year fixed rate will reach 3.3% in 2021 and 3.6% in 2022.
- Freddie Mac and the National Association of Homebuilders expect mortgage rates to be 3% in 2021, while the National Association of Realtors thinks it will reach 3.2% and Wells Fargo thinks rates will be 2.89%.
Loan Origination Volume
- Fannie Mae predicts $2.72 trillion in mortgage originations in 2021 and $2.47 trillion in 2022. They anticipate purchase volume to go from $1.53 trillion in 2020 to $1.6 trillion in 2021 and $1.64 trillion in 2022.