Mortgage originations are expected to continue slowing and finish below $2 trillion in 2027 amid rates that are expected to be remain above 7%, according to a new forecast from the Mortgage Bankers Association (MBA).
“We’re going to come down from this spike in rates,” Mike Fratantoni, chief economist and senior vice president for research and business development at the MBA, said on stage during the MBA’s 2026 Annual Convention and Expo in Chicago on Sunday. “The unfortunate news is, I don’t think we’re going to come down that far.”
The MBA’s baseline forecast projects 30-year mortgage rates will stay above 7% through 2027, after reaching 7.5% last week. At this level, total single-family mortgage origination volume is expected to decrease 5% to $1.99 trillion in 2027, down from the $2.1 trillion projected for 2026.
According to Fratantoni, part of the pressure stems from global volatility, which increases perceived repayment risk. That risk is priced directly as a wider spread between the 30-year mortgage rate and the 10-year Treasury yield.
“After years of trying to bring that spread down, we were 300 basis points in 2023. We were (as low as) 200 this year. We’re back up to 220 or so, and I just don’t think investors are going to quickly forget this level of volatility that we’ve just lived through,” Fratantoni said. “I think they’re going to keep pricing in that mortgage-to-Treasury spread a little bit wider than what we previously had in the forecast.”
The MBA forecasts that the 10-year Treasury yield will average 5.1% in the fourth quarter and remain near 5% through 2027.
The broader macroeconomic driver for higher rates is inflation proving more persistent than anticipated. Last year, concern centered on tariffs lifting prices across multiple sectors, but this year, the focus has shifted to energy price shocks, Fratantoni added.
“Given this environment where inflation is well above the Fed’s target, we think it’s going to be years before they get there,” Fratantoni said. “Where the job market, for all its challenges, is holding up pretty well, we think the Fed is going to be in a position where they have to hike a couple more times.”
MBA economists expect a 25-basis-point hike in December followed by another in the first quarter of 2027, pushing the target federal funds rate above the rate of inflation.
According to Fratantoni, substantial uncertainties surround the forecast. Geopolitical or financial market shocks could further dampen consumer confidence and trigger an abrupt economic slowdown, keeping recession risks elevated. Also, if tensions in the Middle East intensify, oil prices could spike further given depleted reserves, fueling additional inflation.
Refi justification to stay low
By loan type, the MBA expects purchase originations to edge up 0.8% to $1.42 trillion in 2027, while refinance originations are estimated to fall by 17% to $571 billion. Total loan count is projected at 5 million, down from 5.3 million in 2026.
“All in all, you have about 20% of loans outstanding above 6% and about half that are below 4%,” Joel Kan, vice president and deputy chief economist at the MBA, said on stage. “With rates in the 7% to 7.5% range, it’s just very difficult for anyone to really find that justification to refi.”
Kan also noted that the rate lock-in effect continues to discourage homeowners with sub-4% or sub-5% mortgages from moving.
“Once we hit the 7% range, you can see purchase activity dropping off a little bit more significantly. Now we’re running at about 9% below where you were in January,” Kan said.
The MBA expects the adjustable-rate mortgage (ARM) share to hover around 9% as fixed rates linger in the 7s.
Activity is expected to stay subdued despite easing home price appreciation. National home price indices show annual growth moderating into the 2% range, suggesting housing inventory constraints are less acute than in recent years.
“We expect declining levels of new construction for both single-family and multifamily homes over the forecast period. With fewer housing starts and relatively flat home sales expected, our forecast is for national home price growth to decelerate in 2027 before gradually picking up again in 2028,” Kan said in a statement.
Divergence among profitable lenders
Marina Walsh, vice president and head of industry analysis at the MBA, discussed the trend of industry consolidation by pointing out that despite ongoing mergers and exits, roughly 4,600 mortgage companies remain active.
For independent mortgage banks (IMBs), average net production profits remained positive in the second quarter of 2026 for the fifth consecutive quarter — a clear improvement over the pervasive losses seen between 2022 and 2024. But margins remain well below their historic benchmark of 39 basis points.
Performance diverges sharply across firms as the top 20% of 325 lenders surveyed averaged a profit of 122 basis points in Q2 2026, while the bottom 20% reported an average loss of 76 bps.
On the servicing side, portfolios continue to generate solid cash flows, though lenders face potential headwinds from the Basel III Endgame capital framework as well as rising costs in default and loss mitigation. Walsh noted that the MBA is closely watching delinquency trends, particularly in Federal Housing Administration (FHA) loan portfolios.
“We do persist, just like the marathoners today,” Walsh said, referencing the Chicago Marathon that took place Sunday.
