DSNews delivers stories, ideas, links, companies, people, events, and videos impacting the mortgage default servicing industry.
Issue link: http://digital.dsnews.com/i/1541210
MortgagePoint » Your Trusted Source for Mortgage Banking and Servicing News 32 November 2025 C O V E R S T O R Y keep putting some additional first-time homebuyers into the mix. You asked about the main drivers that could lead us higher or lower than that. At our annual conference, we always include a slide that says, "What if mortgage rates are a percentage point higher or lower than in our baseline forecast?" In our baseline forecast, if mortgage rates are, call it six and a quarter right now, over the next couple of years, that's about where we think they're going to be, on average. Obviously, you have moments where, as we've had in the past couple of weeks, investors are more focused on weaker economic growth, a weaker job market, hoping for more aggressive cuts from the Fed, and we'll be at the lower end of a range—maybe we get close to six. There'll be other times where folks are more concerned about inflation. Maybe the Fed's not going to cut as ag- gressively as hoped. The biggest concern on the high side is the deficit, the debt, and the massive amounts of Treasury issuance over the next couple of years to finance that, and that'll push us to the high end of a range. But our baseline is that mortgage rates are about where they're going to be in terms of long-term fixed rates. We have highlighted that in our application data. About 10% of borrowers now are taking out an ARM, and we expect that's likely to go higher because we do expect the Fed to cut a few more times. So, with short rates coming down, even with long rates staying up, the benefit that a borrower gets going into an ARM is going to increase. We think that'll be one way borrowers find some additional affordability over the second half of this year. We've seen weeks where ARM rates are a full percentage point below a fixed rate, so that's our baseline. If we were to get much weaker growth or the job market doing more poorly than is in our baseline, you could get a lower rate path. The origination forecast is much more sensitive to rates dropping a point than rates increasing a point. So, if we get to the low fives, we see a big bump in origination activity in 2026. So rather than that 2.2 in our baseline, we get up to 2.8 in our esti- mate. If rates were to be much lower, on the other hand, if rates were to be a full percentage point higher, how do you get there? Inflation goes the wrong way. The Fed stops cutting and Treasury issues like crazy, then we're below 2 trillion for 2026. I think that's the reasonable range of outcomes, and we're reasonably confident that we're going to stay close to our baseline, because neither of those extremes is likely. Q: Do you anticipate another rate drop from the Fed in December, or do you think they're going to hold steady? FRATANTONI: We have penciled in one more in December and then one in the first quarter of 2026. Some market mea- sures would say maybe two in 2026, but I think what you heard from Chairman Powell at the press conference this week is some real ambivalence among some in the committee. You got one dissent, and just listening to the speeches, I think there's more bubbling beneath the surface. It's going to be harder for them to cut much more, but the weakness in the job market is real. It's tough to see because we don't have the data right now with the shutdown, but everything is indicating that these next couple of quarters, we're going to see the unem- ployment rate go up. Q: Do you see any factors likely to provide some relief on the lock-in effect in 2026? FRATANTONI: We've already seen the lock-in effect begin to fade in 2025, and what I've been pointing to is the increase in existing home inventory. It's up about 30% compared to last year. It's still relatively low, but it's moving up. A lot of that is life events: people continue to get married, have kids, get new jobs, all these things. They feel bad about leaving the low mortgage rate behind, but at some point, they do. I think Last year or two years ago, if someone lost their job and they decided they needed to move, they could list their home and it would be sold before the ink was dry. That is not the case anymore. " —Michael Fratantoni, Chief Economist, SVP, Research and Industry Technology, Mortgage Bankers Association