With rates expected to stay elevated and refinances limited, loan volume is projected to drop
The headwinds affecting the mortgage market are unlikely to subside anytime soon, and the higher-for-longer rate environment is forecast to take its toll on originations in 2027.
The Mortgage Bankers Association (MBA) now expects mortgage originations to fall 5% in 2027 to $1.99 trillion, with the 30-year mortgage rate staying above 7%. Unit volume is forecast to hold around 5 million loans for the next three years, about a third of the peak near 14 million.
Mike Fratantoni (pictured top), chief economist and senior vice president of research and business development at the MBA, presented the outlook Sunday at the association's annual convention in Chicago, alongside Joel Kan, vice president and deputy chief economist, and Marina Walsh, vice president and head of industry analysis.
"With this new rate path that we're anticipating, we pretty significantly marked down our expectations for originations for the remainder of this year and next year," Fratantoni said. "So I think one of the real headlines coming out of our presentation today is the expectation that we think origination volumes are going to be 5% lower in 2027 than where we'll end in 2026."
Refinances stay limited
Mortgage rates averaged about 6.3% in January, and Kan said refinance applications are now running 40% to 45% below their January pace. Purchase applications held up better while rates were in the mid-6s but are about 9% below January now.
"Once we hit the 7% range, you can see the purchase activity dropping off a little bit more significantly," Kan said. "I think this is very much what many of you are feeling now, and it's something that we do expect, at least for the next few quarters or so, if rates were to stay close to current levels."
The MBA's baseline forecast has purchase originations holding near $1.42 trillion in 2027, up slightly from this year, while refinance volume falls to $571 billion.
More than 20% of outstanding mortgages carry rates of 6% or higher, Kan said, and about half are below 4%, which leaves little reason to refinance with rates near 7.5%.
More borrowers who still need to buy are turning to adjustable-rate mortgages, about 10% of loans by units and roughly 20% by dollars, and the MBA expects the unit share to hold around 9% next year.
The MBA has run alternative scenarios for several years, including one with the 30-year mortgage rate 100 basis points below its baseline. Fratantoni said the baseline is the most likely path, but he called the macroeconomic environment more uncertain than it has been for some time.
"I think we're at this point where if rates go lower, it's a much bigger impact on volume than if rates go higher," Fratantoni said. "So instead of a below $2 trillion year, if we get that lower rate path, we're at $2.6 trillion for total volume. Most of that difference is a little bit more refi."
In that scenario, 2027 originations reach $2.637 trillion, with refinance volume rising to $1.025 trillion from $571 billion in the baseline. A path 100 basis points higher would cut volume to $1.536 trillion.
Kan said refinances account for slightly under 30% of loans, which leaves purchases carrying most of the market.
"Unless we get a bigger change in rates, we do think that the refi market will stay pretty limited," Kan said. "At least for the next three years."
Where lenders make money
Walsh followed with the profit picture. Her data tracks about 325 independent mortgage banks, which originate most of the market's loans.
"It's been a tough ride, folks," Walsh said. "I mean, I've been tracking this stuff for over two decades, and it's just tough going. But the good news is if you look at the last five quarters, and these are only averages, it's been positive."
Net production income averaged 25 basis points over those five quarters, or about $775 a loan, still below the 39-basis-point average since 2008. Walsh said third-quarter results are not in yet.
A new analysis this year compares the top 20% of lenders with the bottom 20%, and in the second quarter the top group earned 122 basis points while the bottom group lost 76. Most of the talk about profitability has centered on cost, Walsh said.
"You can be high cost and high revenue and be in that top category," Walsh said. "That was a big eureka moment when I started to do more analysis of this. The big difference, folks, is on the revenue side. There's certainly a difference on the cost side, but it really is revenue."
In the second quarter, the top 20% brought in $14,519 per loan in revenue against $9,968 in expenses, while the bottom 20% brought in $9,651 against $12,202.
Walsh pointed to product mix, secondary marketing income and the strength of a capital markets team as possible reasons for the gap. Pull-through, the share of applications that close, was 68% in the retail channel in the first half of 2026 but 49% in consumer direct, according to MBA data.
"If you think you're doing all this work, you have all this cost associated with applications, and you're only closing one in two applications, that's problematic," she said. "That means your sales staff, your fulfillment staff, everyone is spending a lot of time on ones that simply don't close."
Walsh pushed back on the talk of industry consolidation. About 4,600 companies are still originating loans, and independents hold roughly 67% to 68% of market share even after losing about 175 companies over the last four or five years.
On the same day that thousands took to the streets in the Windy City to run in the Chicago Marathon, Walsh said the mortgage industry shared something in common with those endurance athletes.
"We persist as an industry, right? We do persist, just like the marathoners today," Walsh said. "There are bright spots in this information. So we leave here, and we have challenges ahead, but we persist."
Stay updated with the freshest mortgage news. Get exclusive interviews, breaking news, and industry events in your inbox, and always be the first to know by subscribing to our FREE daily newsletter.
