Projecting Declines in Margins and Volume
The MBA estimates that total U.S. mortgage origination volume will decline by 19% to $1.41 trillion this year, and drop another 25% to $1.061 trillion in 2014. The Federal Reserve has kept the short-term federal funds rate in a record-low range of between zero and 0.25% since late 2008, and the Federal Open Market Committee has said this "highly accommodative" policy is likely to continue until the U.S. unemployment rate declines to 6.5%. But investors are always looking ahead, and the market yield for 10-year U.S. Treasury bonds has increased by 42 basis points over the past three months to around 2%. Atlantic Equities analyst Richard Staite said in a Jan. 29 report that a concurrent increase in yields on mortgage-backed securities (MBS) led to a contraction in the primary secondary mortgage spread to 82 basis points from an average of 123 during the fourth quarter. Jefferies analyst Ken Usdin said in a report Friday that the median gain-on-sale margin for eight large-cap banks covered by his firm expanded to 3.16% in 2012 from 1.94% in 2011. Usdin also estimated that the median gain-on-sale margin would decline to 2.75% in 2013 and 2.33% in 2014. These combined figures exclude Regions Financial of Birmingham, Ala., because "it does not offer the same granularity" as other large-cap regional banks covered by Jefferies, according to Usdin.