Mortgage originations are expected to continue slowing and finish below the $2 trillion threshold in 2027, weighed down by borrowing costs that are projected to remain stubbornly above the 7% mark. The sobering outlook was delivered by leadership from the Mortgage Bankers Association (MBA) during the organization’s annual convention and expo, painting a challenging picture for prospective homebuyers, existing homeowners, and industry professionals alike.<\/p>\n
Addressing attendees on stage, Mike Fratantoni, chief economist and senior vice president for research and business development at the MBA, laid out the realities of the current economic cycle. <\/p>\n
"We\u2019re going to come down from this spike in rates," Fratantoni said. "The unfortunate news is, I don\u2019t think we\u2019re going to come down that far."<\/p>\n
According to the MBA\u2019s baseline economic forecast, 30-year fixed mortgage rates are expected to stay above 7% through the entirety of 2027, following a recent climb to 7.5%. At these elevated levels, total single-family mortgage origination volume is projected to decrease by 5% to $1.99 trillion in 2027, marking a step down from the estimated $2.1 trillion projected for 2026.<\/p>\n
Fratantoni explained that a significant portion of the ongoing rate pressure stems from lingering global volatility, which has heightened perceived repayment risk among market investors. This risk is being directly translated into the financial markets as a wider spread between the benchmark 30-year mortgage rate and the 10-year Treasury yield.<\/p>\n
"After years of trying to bring that spread down, we were 300 basis points in 2023. We were as low as 200 this year. We\u2019re back up to 220 or so, and I just don\u2019t think investors are going to quickly forget this level of volatility that we\u2019ve just lived through," Fratantoni told the audience. "I think they\u2019re going to keep pricing in that mortgage-to-Treasury spread a little bit wider than what we previously had in the forecast."<\/p>\n
Compounding the issue, the MBA forecasts that the 10-year Treasury yield will average 5.1% in the final quarter of the year and hover near 5% throughout 2027. <\/p>\n
Driving these higher interest rates on a macro level is persistent inflation that has continually defied earlier projections. While concerns previously centered on the inflationary impacts of tariffs across multiple sectors, the focus has more recently shifted toward acute energy price shocks. <\/p>\n
"Given this environment where inflation is well above the Fed\u2019s target, we think it\u2019s going to be years before they get there," Fratantoni said. "Where the job market, for all its challenges, is holding up pretty well, we think the Fed is going to be in a position where they have to hike a couple more times."<\/p>\n
To combat persistent price pressures, MBA economists anticipate a 25-basis-point interest rate hike by the Federal Reserve in December, followed by another identical increase in the first quarter of 2027. This trajectory is expected to push the target federal funds rate comfortably above the prevailing rate of inflation.<\/p>\n
Nevertheless, Fratantoni emphasized that substantial uncertainties hang over the forecast. Any unexpected geopolitical flare-ups or financial market shocks could severely damage consumer confidence, spark an abrupt economic slowdown, and keep the specter of a recession elevated. Furthermore, should tensions in the Middle East intensify while global energy reserves remain depleted, oil prices could experience severe spikes, generating another wave of inflationary pressure.<\/p>\n
A breakdown of the numbers by loan type reveals stark differences between purchase and refinance activity. The MBA projects that purchase originations will edge up a modest 0.8% to $1.42 trillion in 2027. Conversely, refinance originations are estimated to plummet by 17% down to $571 billion. Total loan count is anticipated to drop to 5 million, falling from 5.3 million expected in 2026.<\/p>\n
Joel Kan, vice president and deputy chief economist at the MBA, pointed to the deep imbalance within the existing pool of outstanding mortgages as a primary barrier to refinancing activity.<\/p>\n
"All in all, you have about 20% of loans outstanding above 6% and about half that are below 4%," Kan said on stage. "With rates in the 7% to 7.5% range, it\u2019s just very difficult for anyone to really find that justification to refi."<\/p>\n
Kan noted that the well-documented rate lock-in effect continues to heavily discourage homeowners who secured sub-4% or sub-5% mortgages during the pandemic-era historic lows from putting their homes on the market and taking on a new, much higher rate. <\/p>\n
"Once we hit the 7% range, you can see purchase activity dropping off a little bit more significantly. Now we\u2019re running at about 9% below where you were in January," Kan added.<\/p>\n
Because fixed rates are locked firmly in the 7% range, the MBA expects the market share for adjustable-rate mortgages (ARMs) to remain steady at roughly 9%. <\/p>\n
This subdued level of activity is expected to persist even as home price appreciation begins to ease. National home price indices indicate that annual growth is moderating into the 2% range, pointing to a housing inventory market that is somewhat less constrained than it has been in recent years.<\/p>\n
"We expect declining levels of new construction for both single-family and multifamily homes over the forecast period. With fewer housing starts and relatively flat home sales expected, our forecast is for national home price growth to decelerate in 2027 before gradually picking up again in 2028," Kan said in a statement.<\/p>\n
Shifting focus to the operational health of the lending industry, Marina Walsh, vice president and head of industry analysis at the MBA, addressed the ongoing trend of consolidation. Despite a wave of mergers, acquisitions, and corporate exits over the past few years, approximately 4,600 mortgage companies remain active in the market today.<\/p>\n
For independent mortgage banks (IMBs), average net production profits remained positive through the second quarter of 2026, marking the fifth consecutive quarter in the black. This represents a welcome recovery from the widespread and painful losses experienced across the sector between 2022 and 2024. Even so, profit margins remain well below the historical benchmark of 39 basis points.<\/p>\n
Performance within the industry also remains heavily fragmented. Data from a survey of 325 lenders reveals a sharp divergence: the top 20% of surveyed lenders averaged a robust profit of 122 basis points in the second quarter of 2026, while the bottom 20% reported an average net loss of 76 basis points.<\/p>\n
On the servicing side of the business, portfolios continue to generate steady and reliable cash flows. However, lenders are bracing for upcoming headwinds, including potential capital requirement changes under the Basel III Endgame framework, alongside rising costs associated with managing defaults and loss mitigation efforts. Walsh noted that the MBA is monitoring delinquency trends closely, particularly within Federal Housing Administration (FHA) loan portfolios.<\/p>\n
Reflecting on the resilience required to navigate the prolonged market downturn, Walsh offered a fitting metaphor to close her remarks to industry peers.<\/p>\n
"We do persist, just like the marathoners today," Walsh said, referencing the Chicago Marathon taking place concurrently with the convention.<\/p>\n","protected":false},"excerpt":{"rendered":"
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