NEW YORK (Reuters) - The U.S. mortgage industry likely recorded an operating loss in the first three months of 2018 due to falling loan volumes and growing expenses, the Mortgage Bankers Association's chief economist, Michael Fratantoni, said on Monday.
This would mark the first quarterly loss for the home finance industry in four years, as 30-year mortgage rates hit a seven-year high last week, Fratantoni said.
Net production margin fell to 9.3 basis points in the fourth quarter of 2017, down from 40.5 basis points in the prior quarter, according to the MBA.
The historic average on operating income is about 55 basis points, he said.
"We're assured it (the operating margin) will be in the negative mid-single digits" in the first quarter, Fratantoni told reporters at the MBA National Secondary Market conference. "Price competition has become extraordinarily tight."
Slower business volume and rising costs would result in some industry consolidation in the form of exit among smaller lenders and scaling back by larger ones, he said.
The average interest rate on 30-year mortgages, the most widely held type of loan among U.S. homeowners, is expected to reach 5.0 percent by year-end, climbing to 5.4 percent in 2019 before stabilizing at that level in 2020.
Last week, mortgage rates rose in step with a bond market selloff that propelled 10-year Treasury yields (US10YT=RR) to the highest level since July 2011.
Worries about rising inflation and government borrowing lifted the 10-year Treasury yield (US10YT=RR) to 3.128 percent on Friday, the highest level since July 2011, Reuters data showed.
Rising mortgage rates are expected to depress refinancing activity in the coming years. However, it is unlikely they will have much of a negative impact on lending to buy homes due to tight supply and solid demand, Fratantoni said.
In 2018, lenders are expected to make $1.167 trillion in loans for home purchases, up from $1.110 trillion in 2017. They will likely originate $446 billion in mortgages for refinancing, down from $600 billion in 2017, Fratantoni said.