What do Rate Hikes Mean for Origination Volume?

While ""FBR Capital Markets"":http://www.fbr.com/ maintains its predictions for origination volume--$1.6 trillion in fiscal year 2013 and $1.4 trillion in fiscal year 2014--are still ""attainable,"" the volatility of the current environment has the firm taking another look at the possibilities ahead.

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Given the expectation that purchase volumes will return to normalized levels and that the government will continue to support the housing market recovery, FBR believes its forecast won't be far off the mark. That said, the company admits its estimates ""depend on a stable rate environment or a more robust level of economic activity than we are experiencing today.""

Should rates return to last year's trend of steady declines, FBR predicts purchase and refinance originations will outpace its estimates--the most likely outcome, ""given the tepid economic recovery and probable government intervention if purchase activity remains lackluster,"" said analyst Paul J. Miller Jr., CFA.

On the other hand, in an environment in which rates continue rising (absent meaningful economic recovery), affordability concerns would drive down activity. If, however, rates rise as a sign of economic growth, FBR anticipates purchase originations will rise enough to offset most of the ongoing decline in refinances.

Additionally, the firm's expectation for increased activity depends on lenders' willingness to open their purse strings and improve accessibility for borrowers with less-than-pristine credit.

""To that end, we believe that regulators are crafting mortgage rules in order to support banks going down the credit spectrum through newly proposed QM [qualified mortgage] standards, reps and warranties rules, disparate impact, and recent FHA [Federal Housing Administration] guidelines surrounding post-bankruptcy lending,"" Miller said.