Weak Third Quarter Expected for Mortgage Banks

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As interest rates increase a drop in refinancing of homes can be expected and as homes prices rises a reduction in home purchases can also be expected. For a more detailed look at this subject please read the article below.

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Investment bank FBR Capital Markets released its preview of third-quarter earnings for major U.S. banks Monday, with a cloudy outlook for mortgage banking. In general, bank stocks have underperformed the broader market by about 2 percent over the third quarter; and zeroing in on the mortgage market, FBR is not optimistic about Q3 results.

“We believe mortgage banking results will be weak, with volumes coming in low,” FBR stated.

FBR’s third-quarter mortgage originations estimate is $349 billion, a 29 percent decline over the quarter.

The abating refinance market is a major drag on the mortgage industry, and, “[w]e do not believe that there will be a strong enough increase in the purchase market this quarter to offset the loss in refi volume,” FBR stated.

FBR estimates a 46 percent decline in refinances in the third quarter and a 2 percent rise in purchase originations.

Rising interest rates have made refinancing less attractive for homeowners, even after a recent drop of almost 40 basis points.

Looking ahead, FBR expects declines in purchase originations over the following two quarters before a significant uptick in the third quarter of 2014.

While rising rates have cut into gain-on-sale margins, FBR noted a recent uptick in margins after the Federal Reserve’s announcement that it will not soon scale back its bond purchases.

To read the complete article please use the link below.

Weak Third Quarter

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