Analysts Revise Forecasts on Weak MBS Issuance

Issuance of mortgage-backed securities (MBS) has remained weak through the year’s early months, pushing some analysts to rethink earlier originations forecasts.

Citing weak MBS issuance data published by Inside Mortgage Finance—$67.3 billion in January, followed by $64.5 billion in February—researchers for investment bank FBR Capital Markets anticipate a weak first quarter, with issuances likely totaling near $200 billion.

While noting that issuances are not the same as origination figures, FBR nevertheless dialed back its first-quarter origination projections to $244 billion, bringing its full-year forecast to $1.2 trillion from $1.3 trillion previously.

“Though we had long expected refinancing volumes to slow as rates rose and the pool of borrowers with an economic incentive to refinance declined, we have been counting on a rebound in the purchase market that has yet to occur,” the FBR team notes in its latest report.

While there are several factors that can explain the slow comeback in purchase lending, they go on to say that the two biggest influences will correct themselves over time: higher interest rates and a lack of credit availability. At this point, the question is how long it will take for purchase loans to make their much-anticipated recovery.

“Though our 2014 expectations have moderated to around $1.2 trillion from an original $1.5 trillion estimate, we continue to believe there is upside to both our estimates and the MBA’s [Mortgage Bankers Association’s] $1.1 trillion forecast,” FBR said. “This should especially be true if refinancing volumes stabilize and purchase volumes begin to increase.

“Given a lack of purchase strength in the last several months, the next six to nine months will be a critical driver of mortgage company performance in the coming year.”