Freddie Mac Forecasts Fewer Originations in 2021 and 2022
Written By: Joel Palmer, Op-Ed Writer
Freddie Mac’s latest quarterly forecast predicts that low mortgage rates will continue to boost the mortgage market in 2021, but volume will moderate from 2020 levels.
“Despite the uncertainties of the pandemic, the housing market performed well in the second half of 2020,” said Sam Khater, Freddie Mac’s chief economist. “Low mortgage rates and the ability to work remotely continued to support the demand for housing, which is reflected in home sales reaching levels not seen since 2006.”
The surge in home sales has put pressure on housing inventory and caused the unsold inventory to hit an all-time low of 1.23 million, with only a 2.3-month supply at the current sales pace.
Khater continued, “Entering 2021, we anticipate a modest rise in rates that will likely affect refinance originations, which are coming off a remarkable year. We therefore forecast total originations to decline slightly to $3.3 trillion but remain strong this year.”
According to the forecast:
The rate on a 30-year fixed mortgage will average 2.9 percent for the year before rising slightly to 3.2 percent in 2022.
After hitting $2.4 trillion in 2019, total mortgage originations are expected to tally $4 trillion when 2020 results come in. Freddie predicts total originations to fall to $3.3 trillion in 2021 and back to 2019 levels in 2022.
Purchase originations will climb slightly this year from $1.4 trillion to $1.5 trillion in 2021 and 2022.
Refinance originations will fall considerably over the next two years. They came in at $2.6 trillion in 2020 but are expected to drop to $1.7 trillion in 2021 and $895 billion in 2022.
Home sales are expected to remain flat at 6.5 million in 2021 and decrease in 2022 to 6.2 million homes.
In other GSE news:
The Federal Housing Finance Agency (FHFA) and the U.S. Department of the Treasury announced amendments to the Preferred Stock Purchase Agreements (PSPAs), which allow Fannie Mae and Freddie Mac to continue to retain earnings until they satisfy the requirements of the 2020 Enterprise capital rule.
FHFA released a final rule in November 2020 establishing a regulatory capital framework for Fannie and Freddie. The rule states that the GSEs must maintain tier 1 capital in excess of 4 percent to avoid restrictions on capital distributions and discretionary bonuses.
Additionally, Treasury has agreed that the enterprises can raise private capital and exit conservatorship once certain conditions are met. To facilitate Enterprise equity offerings, Treasury has committed to work to restructure its investment in each enterprise.
FHFA also extended several COVID-19 related loan origination flexibilities another month. These flexibilities include:
Alternative appraisals on purchase and rate term refinance loans
Alternative methods for documenting income and verifying employment before loan closing
Expanding the use of power of attorney to assist with loan closings
These temporary provisions were scheduled to expire January 31. They have been extended to February 28.
About the Author
As an NAMP® Opinion Editorial Contributor, Joel Palmer is a freelance writer who spent 10 years as a business and financial reporter and another 10 years in marketing for the insurance and financial services industries. He regularly writes about the mortgage industry, as well as residential and commercial real estate, investments, and retirement income planning. He has also ghostwritten books on starting a business, marketing, and retirement income planning.
