They say the key to making good predictions is to make a lot of them and make them often! Certainly, forecasts and mortgage industry predictions are not hard to come by this time of year. Rather than make my own, I thought it best to share the wisdom of experts. The following list does not represent the opinions of MGIC, but rather, it simply highlights some of the many mortgage industry predictions I’ve heard at conferences and from my conversations with secondary managers and economists.

  • While many expect the Federal Reserve to start raising rates by mid-2015, a growing number is of the opinion that, with the recent drop in oil prices combined with weakness in world economies, the Feds will not raise rates in 2015.
  • The Federal Reserve target for the fed funds rate (short-term interest rates) is 1% by end of 2015 and 2.75% by the end of 2016. Based on the recent Fed meeting, there is some built-in flexibility as to when the Feds will actually start raising short-term rates.
  • Gross Domestic Product (GDP) growth estimates for the next 2 years are in the 2.5%-3% range — the strongest 2-year period since 2001-2007.
  • In 2015, it’s expected that we will have 210,000 new jobs created each month and unemployment will stay below 6%.
  • The foreclosure crisis appears to be mostly behind us. More borrowers are expected to emerge from “underwater” status.
  • The apartment rental boom is now in full motion, but may have peaked — good news here for a potential pickup in housing demand for 2015. Let’s talk Millennials!
  • Leading economists polled by the Wall Street Journal suggest housing starts next year to be 1.22 million versus 1.05 million new units started this year. Note that last year’s predictions related to housing were overly optimistic. Most experts suggest that the housing sector was one of most disappointing performers in 2014.
  • Freddie Mac predicts home sales for next year at 5.6 million, the highest level since 2007, a 4% jump from 2014. Here’s the link for their summary.
  • Fitch and other industry experts predict home prices to rise 2.7% next year versus 4.5% in 2014, prompted by housing supply increases.
  • Freddie Mac predicts 30-year fixed rates will rise an average of about 4.4% percent for 2015 versus this month, which is just below 4%.
  • Zillow Predicts a Breakthrough Year for First-Time Buyers in 2015.

Secondary Market Trends for 2015

Let’s switch our focus over to mortgage industry predictions for the secondary markets. Based on what I’m hearing from my contacts, here’s what I expect to see in 2015.

  • M&A (merger and acquisition) activity will remain strong. We have already witnessed a flurry of year-end deals. Trade publications report on others — one specifically cited it wants to acquire as a way to grow its non-QM business. That deal and others have yet to be inked — stay tuned!
  • Some correspondent investors will be challenged to keep their doors open in 2015. I am already hearing of some exit or changing strategies. Some are simply rolling it up through their wholesale divisions. Pricing is becoming a tough place to compete, especially in a very capital-intensive part of the business. As one industry observer told me recently, “One can only sell so much servicing to keep the ’lights on‘ and subsidize street pricing.”
  • Warehouse banks have done a tremendous job providing much needed liquidity in the market. Some actually entice potential customers with non-price incentives, such as Mortgage Servicing Rights (MSR) financing; portfolio products (QM and non-QM); and niche offerings such as 2nds and 1-time close construction programs. However, according to industry experts, there is still too much capacity available. This will correct itself over time as newer nonbanks are formed from mergers and acquisition activity, etc. There definitely have been fewer new warehouse banks formed, and I see that trend continuing.
  • Mini-correspondent lending is still a very small subset of wholesale or correspondent lending. Wholesalers who offer this option suggest it only represents 10%-20% of their entire production. I don’t see this market segment going away, but rather, it will maintain steady growth to support the newer nonbank startups resulting from the recent M&A activity. The emerging banker model is a logical stepping stone to becoming a mortgage banker by increasing its capital base so eventually it can meet financial requirements to receive delegated underwriting authority from its investors. The National Association of Realtors, according to a recent trade publication, is very supportive for this business segment they feel this allows for more consumer options.
  • There will be continued dominance by national and regional banks to balance sheet prime jumbos, including non-QM, interest—only jumbos. The yields are still more attractive than alternative investments, and it’s backed by pristine-performing real estate collateral. Activity in the 2015 whole-loan selling market will be similar to this 2014’s activity as many of the issuers (private-label securities market participants) will have few options available to them besides issuing securities.
  • HELOCs and 2nds will be in big demand; however, the larger and medium-size banks and the credit union sector will dominate. Mortgage bankers will not have a very liquid market available to them, compared to those with portfolio capability. Wall Street and the private equity funds may try and participate, but it will be a yield play and may not be competitively priced, compared to alternative consumer options.
  • Non-QM business will continue to be hyped and gain some traction in 2015 as lenders/warehouse banks/investors get more comfortable with the additional risk. Meaningful origination volume will happen only when investor yield requirements meet consumer demand. New entrants are looking at this market. Loan features that will continue to be in demand within the non-QM space include interest-only jumbos, prime jumbos with expanded ratios, 12-Month Bank Statement Programs designed for self-employed borrowers, and Investor Property loan programs using cash-flow analysis as income qualifiers (which doesn’t comply with appendix Q). Other programs that will continue to see momentum are the early access/life event loans, such as the 1-day-out-of-foreclosure/short sale/bankruptcy, etc.
  • Non-QM loans (except for jumbos) likely won’t be bought by depositories. Insurance companies and hedge funds will continue to be the most active buyers.
  • Mortgage Servicing Rights (MSR) will continue to dominate the scene for many seller/servicers. Buy/hold/sell strategies will vary, depending on cash-flow needs and the old philosophy, “If it’s worth more to someone else, the need to sell is greatest.” The reverse is also true.
  • Products and programs that will be “in style” next year include “access to credit” and facilitating the need to find attractive financing options for Millennials. The good news here is that they are an extremely large group, and they are more educated than previous generations. According to a recent Gallup poll, Millennials represent almost one third of the current workforce. This should make for an exciting year in 2015.

Warm wishes for a wonderful holiday season. We’ll see you in 2015!

Lloyd San

Lloyd San - MGIC Mortgage Market Manager

A 30-year mortgage industry veteran, Lloyd San currently serves as Mortgage Market Manager for Mortgage Guaranty Insurance Corporation (MGIC). Overseeing a national effort, he’s responsible for managing all client-related capital market activities in the areas of bulk and correspondent loan referrals, investor introductions, structured products, whole loan sales, as well as product and personnel introductions.

In addition, he is chairman of the California Mortgage Bankers Association, Secondary Marketing Executive Committee and also serves on the Western Secondary Conference Committee.

A graduate of San Diego State University in California, Lloyd received his MBA in Financial Management from National University. He also holds a California Real Estate Broker’s License.

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