At the Mortgage Bankers Association annual convention this year, Marina Walsh, its vice president of industry analysis, said that more downsizing needed to occur in order to reach the target reduction of capacity of 30% the MBA advised last year.
Independent mortgage bankers have been "much more aggressive in terms of adjusting headcount, for different market conditions versus banks," Walsh continued, noting this segment has had a 41% drop.
"It will probably continue again for a few more quarters, we think we're about two thirds of the way there," she said.
But when it comes to industry profitability, things are going to be a bit more difficult. The mortgage industry has seen five consecutive quarters of originating at a loss.
It expects lower volume in the third quarter, based on data from its Weekly Application Survey. Furthermore, profits are typically lower in the fourth quarter and first quarter.
"It's going to be a little bit more painful for a few more quarters until we get to the end of the spring of 2024," she said.
Meanwhile, Mike Fratantoni, the MBA's chief economist declared that the Federal Open Market Committee is "done" with its rate hike, even with some of the comments made coming out of the most recent meeting.
He pointed to recent speeches by some of the hawks that the long-end of the yield curve has increased so much, it is doing the Fed's work.
The MBA's latest view will be three rate cuts by the Fed in 2024 as the economy slows even more than it forecasts.
He addressed the abnormally wide spreads between Treasurys and mortgages, noting that they are a function of both uncertainty over monetary policy and uncertainty over the Fed's quantitative tightening program.
"I think both of those are going to get resolved in a favorable direction over the course of the next six to 12 months," Fratantoni said.
In his October forecast, unveiled during the presentation, Fratantoni cut his estimates from September, not just for 2023, but the next two years as well. He still expects the U.S. economy to enter a recession in the first half of next year.
The latest outlook for 2023 puts originations at $1.64 trillion, with $1.33 trillion coming from purchases. In September, Fratantoni had expected $1.68 trillion, with $1.36 trillion from purchase.
For 2024, the MBA reduced its projections by $10 billion, to $1.95 trillion from $2.05 trillion; purchases are now expected to come in at $1.47 trillion from $1.52 trillion. Its 2025 prediction of $2.25 trillion was cut from $2.36 trillion.
The organization made its first estimates for 2026, expecting $2.38 trillion. Approximately $1.75 trillion should come from purchase transactions.
Separately, Fratantoni's counterpart at Fannie Mae, Doug Duncan, is also holding to projections of a mild economic downturn in the first half of next year.
"Personal consumption has not only remained resilient, but recent official data revisions indicate that the consumer has been in a better position than previously thought, increasingly the likelihood of an economic 'soft landing,'" Duncan said in a press release issued Monday morning. "However, despite consumer resiliency, the recent rise in interest rates has been precipitous, and in past environments — even with less severe interest rate shocks — this has led to economic dislocations."
Duncan also does not expect any further rate hikes from the Fed.
Fannie Mae's October projections for 2023 total volume were essentially unchanged from September, at $1.59 trillion; purchase outlook also stayed at $1.31 trillion.
But Duncan did raise his 2024 forecast to just under $1.9 trillion from $1.88 trillion in the prior month's guidance. That is inclusive of a $70 billion increase in the purchase forecast to $1.44 trillion.
"We expect that total housing market activity will remain at a low level into 2024 as the Federal Reserve continues to hold the line on interest rates against inflation," he said.
