MBA looks ahead with predictions and long-term plansMortgagePress.comMortgage Bankers Association of America MBA releases long-term economic forecast The Mortgage Bankers Association (MBA) has released its three-year economic forecast update. The MBA is projecting continued strong economic growth of 3.5 percent for 2006, with moderate, below-trend growth of 3.3 percent in 2007. Total residential mortgage production in 2006 will be $2.24 trillion, the fifth biggest year on record, but a 19.5 percent decline relative to 2005. "We expect economic growth to remain solid in 2006, but we will begin to see below-trend growth for 2007," said Doug Duncan, MBA chief economist and senior vice president for research and business development. "Housing will decline modestly from the fifth consecutive record year in 2005, but will remain robust historically. Home price appreciation rates will be moderate compared to recent years." During the MBA's 2006 state of the real estate industry press briefing, Duncan said that the labor market remains strong nationally, however the devastating impacts of the hurricanes in the Gulf Coast area continue to negatively impact that region. Core inflation should edge higher this year, but will remain contained. Elevated energy prices are expected to pass though to underlying inflation only modestly. The Fed is expected to continue tightening rates through March to ensure that inflation remains under control, and it is expected that the Fed will halt the tightening cycle after those two additional increases. Since the Federal Open Market Committee meeting in December 2005, long-term interest rates have moderated as a result of speculation that the tightening phase may be ending soon. It is expected that the yields on 10-year Treasury notes will gradually rise to 4.8 percent by the end of 2006 and remain at that level through 2007. Additionally, the 30-year fixed-rate mortgage yield should rise moderately to about 6.4 percent by the end of 2006 and through 2007. With below-trend economic growth in 2007, due to slowed consumption growth, coupled with contained inflation, the MBA expects that the Fed will lower the Fed funds rate in late 2007. After that point, it is expected that both the 10-year yield and the 30-year fixed rates will decline to 4.6 percent and 6.1 percent respectively by the end of 2008. The following are the key points of the latest MBA forecast: • Real GDP growth will be at 3.5 percent in 2006, 3.3 percent in 2007 and then increase to the trend rate of about 3.6 percent growth in 2008. • Fixed mortgage rates will rise moderately to about 6.4 percent by the end of this year and through 2007 and decline to around 6.1 percent by the end of 2008. • A flat yield curve will continue as the spread between fixed- and adjustable-rate mortgages has narrowed significantly over the past year. The share of adjustable-rate mortgages has declined over the past year as well, and it is projected that the decline in the share will continue through 2008. • Total existing-home sales will decrease by 4.7 percent in 2006 compared to the record in 2005 and will decline another 4.4 percent in 2007, but should remain flat in 2008. New-home sales for 2006 will decline by 4.3 percent from a record high in 2005, and will slip by another 4.9 percent in 2007. They should remain flat for 2008. • Existing home price appreciation is expected to moderate significantly in 2006, with median existing home prices increasing 6.6 percent in 2006. Increases in new home prices are projected to be slower, with median new home price gains expected to be five percent in 2006. Price gains in 2007 and 2008 are expected to continue to be healthy but at a more sustainable pace of about four to five percent for both existing and new homes. • Total residential mortgage production will decline by 19.5 percent to $2.24 trillion in 2006 (the fifth-highest level ever) from an estimate of $2.79 trillion in 2005 (the third-highest level ever). • Residential mortgage originations for purchase loans will edge down slightly from an estimated $1.49 trillion in 2005 to $1.46 trillion in 2006. Purchase originations should decline further to $1.45 trillion in 2007. Declining mortgage rates in 2008 are expected to boost purchase originations to $1.54 trillion in 2008. • Residential refinance loans will decline by nearly 40 percent from 2005 to $784 billion in 2006 and should decline further to $685 billion in 2007. Lower rates will spur refinance activity, increasing refinance originations to $886 billion in 2008. Refinance activity from 2006 forward will also benefit from a significant number of hybrid adjustable rate mortgages reaching their first rate reset and are refinanced either into another ARM or fixed-rate product. MBA unveils 2006 advocacy agenda The MBA unveiled its 2006 advocacy agenda during its annual state of the real estate finance industry press briefing on Jan. 25. MBA's top officials highlighted three of MBA's key industry policy issues that the real estate finance industry will address in 2006. "With the passage of the Terrorism Risk Insurance Act, bankruptcy reform and class action reform, 2005 was an outstanding year for the mortgage industry. But, challenges remain," said Kurt Pfotenhauer, senior vice president for government affairs at the MBA. "In 2006, MBA will continue to push Congress to pass GSE reform legislation, allocate the resources necessary to combat mortgage fraud and preserve important tax incentives, which encourage Americans to invest in their communities." The MBA's 2006 policy priorities include: • Mortgage fraud. The MBA will seek $6.25 million in dedicated funding for 30 new FBI field investigators and two new dedicated prosecutors at the U.S. Department of Justice to coordinate prosecution efforts with the U.S. attorney's offices and $750,000 to support the operations of FBI Interagency Task Forces in the areas with the 15 highest concentrations of mortgage fraud. With these increased and dedicated resources, the FBI can more effectively pursue and prosecute mortgage fraud. • GSE reform. The MBA will also continue its support for the creation of a strong, independent, well-funded and effective regulator who will assure that the GSEs' activities do not improperly expand into the primary market, set appropriate affordable housing goals and activities, and ensure a strong and competitive secondary market. • Tax reform. The MBA will advocate for the preservation of tax incentives that increase homeownership and create more opportunities to build affordable rental housing, such as the mortgage interest deduction. "Fraud against lenders is an issue that impacts every lender and takes a huge toll on the resources of lenders," said MBA Chair Regina M. Lowrie. "Actions on Capitol Hill or by regulators have an impact on how MBA member companies operate their businesses. As such, MBA is dedicated to its policy priorities so that it can continue to make its strong contributions to the U.S. economy." MBA names members to Council to Shape Change MBA Chair Regina M. Lowrie, CMB, president of Gateway Funding Diversified Mortgage Services, named the members who will make up the recently developed industry think tank, Council to Shape Change. The council will evaluate the forces and trends that shape the real estate finance industry to determine what the environment will look like in the future. The primary goal is to develop a strategic framework that will guide industry and company planning and development for the next decade. "I'm delighted with the blue chip quality group that has been assembled and I look forward to discussing the real estate finance industry with those who have committed to being a part of this dynamic initiative," said Lowrie. "The council has been created to include some of the country's best strategic thinkers who will come together to explore what the industry will look like in the future so that we can better position ourselves for what lies ahead." The members of the Council to Shape Change are: Michael Berman, president of CW Capital, Needham, Mass. John Courson, president/CEO of Central Pacific Mortgage Company, Folsom, Calif. Ernest Fair, managing director/head of TIAA/CREF Western Region, New York Tom Halbach, president of Residential Mortgage Capital, San Rafael, Calif. Anthony Hsieh, CEO of Lending Tree Loans, Irvine, Calif. S.A. Ibrahim, CEO of Radian, Philadelphia Alan Kronovet, managing director of Wachovia Securities, Charlotte, N.C. Rodrigo Lopez, president/CEO of AmeriSphere, Omaha Jim Murphy, president/CEO of Q10 New England Realty Resources, Boston Steve Nadon, chief operating officer of Option One Mortgage Corporation, Irvine, Calif. Christopher Nordeen, president of International Business Group/GMAC Residential Funding Corporation Inc., Houston Richard Swanson, principal of Hillis Clark Martin & Peterson P.S., Seattle Larry Washington, chairman/CEO of Merrill Lynch Credit Corporation, Jacksonville, Fla. Thomas Wind, co-CEO of Chase Home Finance, Iselin, N.J. Brenda White, managing director of Deloitte & Touche Corporate Finance LLC, New York Richard Wohl, president of IndyMac Bank, Pasadena, Calif. Andrew Woodward, former president of MBA, Columbia, S.C. Over the next nine months, the council will meet for a series of meetings that will focus on: • Changing borrower profiles; • The nature of the customer relationship and workforce diversity; • Credit decisions—who makes them and how; • Operational demands and capabilities; • Capital markets and investor demand; • Potential changes to industry organization and structure; and • Technology's impact on these and other topics. Bill Haraf, a consultant with Promontory Financial Group, has been retained by the MBA to act as the facilitator for the Council to Shape Change. Bill brings with him strong experience and capabilities in strategic analysis and financial services. He also has an impressive résumé covering the business, policy and academic worlds. For more information, visit www.mortgagebankers.org.