Mortgages are shaping up as one of the potential bright spots for lenders (and the economy) this year.
The Home Mortgage Disclosure Act data due in the next few weeks is expected to show the turnaround actually began last year. The numbers will likely provide further evidence that home lending in 2014 was not nearly as depressed as some economists had predicted, according to a closely watched HMDA forecast by the analytics firm CoreLogic.
As a result, overall lending estimates probably will be revised higher for 2015 since the HMDA data is the benchmark on origination volume. Speculation that the Federal Reserve may hold off raising interest rates until December or next year could further buoy those outlooks.
Granted, mortgage lending fell 27% last year to $1.28 trillion, according to CoreLogic, which used public record data to mimic the upcoming HMDA report. But most economists had forecast a nearly 40% drop in home lending in 2014, compared with lending volume of $1.75 trillion in 2013.
"The market didn't shrink as much as folks had expected," said Sam Khater, a deputy chief economist at CoreLogic in Irvine, Calif. "This has implications for the market's size in 2015, so we'll probably see more of the numbers moving up."
The bright spot came from the higher mix of home purchases at 51% compared to 49% refinances. That momentum continued into 2015.
On Monday, Freddie Mac revised its estimate for 2015 mortgage originations to $1.45 trillion, up from a previous estimate of $1.35 trillion, according to Freddie's Chief Economist Sean Becketti. He cited stronger-than-expected refinance activity and home sales, which are projected to reach 5.73 million units this year. If the estimates hold, 2015 could be the best year for home sales since 2007, Becketti said in a press release.
In July the Mortgage Bankers Association also raised its forecast, saying total originations will jump 23% to $1.35 trillion in 2015; it cited a 25% surge in home purchases to $801 billion.
Economic conditions have made lenders are more optimistic about housing in 2015 than they have been in some time. Low rates are still enticing homeowners to refinance and relaxed down payment requirements by Fannie Mae have spurred more home sales to first-time homebuyers.
If anything, the CoreLogic estimate may simply whet lenders' appetite for the official HMDA data release in mid-September by the Federal Financial Institutions Examination Council.
HMDA data is collected from more than 7,200 financial institutions on borrowers who apply for mortgages. It is regularly used by bank examiners for fair lending examinations and enforcement actions. Regulators also use the data to target lenders that they think have failed to provide mortgage credit in minority neighborhoods.
Moreover, banks and mortgage lenders hew closely to the HMDA data when planning budgets and hiring. Fannie Mae and Freddie Mac use it to set public policy goals. The data is mined for denial rates on mortgage applications — an area CoreLogic did not attempt to forecast.
CoreLogic's estimate of mortgage origination volume is typically 1% below the HMDA estimate, Khater said. Since HMDA reporting covers about 95% of the market, the total mortgage market was probably closer to $1.36 trillion last year, Khater said. More telling for the future is that home purchases, according to the CoreLogic analysis, made up 54% of total lending compared with 46% for refinances.
Of course, the trillion-dollar mortgage market can be very tough to gauge. Economists have consistently low-balled the overall market, in part because of gyrating mortgage rates and lags in public records data.
"We're sort of driving forward by looking in the rearview mirror, and it's a nine-month lag," Khater said.
Banks, mortgage lenders and the government are still struggling to determine the real size of the mortgage market, which topped $2.3 trillion in 2006. At that time, lax regulations and loose underwriting standards led to a proliferation of "no income, no asset" and "no money down" loans that inflated total volume.
David Moffat, the president and CEO of Mortgage TrueView, a Bountiful, Utah, analytics provider, said higher 2014 volumes should augur well for a stronger housing market going forward. The eventual rise in rates does not concern him.
"The argument that many would like us to believe — and I don't think it's unreasonable — is that rising interest rates indicate a growing economy," Moffat said. "When rates are low, refinancing is what people do. If there is that stability, a rise in interest rates would be a way of the Fed saying 'We're fine.' "
Conversely, some experts would argue that lackluster wage growth and a strong rebound in home prices will keep many homebuyers on the sidelines unable to afford a home in urban and coastal markets.
The HMDA release also will ignite plenty of debate about the Consumer Financial Protection Bureau's proposal from July 2014 to expand HMDA requirements to include about 40 additional data points. The CFPB wants lenders to disclose the age and credit score of homebuyers, the property value and interest rate details. Currently, publicly released data is primarily broken down by geography, race, gender and whether the applicant was approved or denied.
"The opportunity that lies ahead is to get to a better place analytically," said Moffat. "Maybe the real value of the HMDA data will be to show that the bottom isn't falling out of the market."
