WASHINGTON–Mortgage originations are expected to decline 5% in 2027 as interest rates remain above 7%, limiting refinancing opportunities and continuing to weigh on home purchases, according to a new forecast from the Mortgage Bankers Association (MBA).
The MBA is now projecting total mortgage originations will fall to $1.99 trillion in 2027, with the number of loans remaining near 5 million annually over the next three years. That compares with a peak of nearly 14 million loans during the pandemic-era mortgage boom.
The forecast was presented Sunday during the MBA’s annual convention in Chicago by Mike Fratantoni, the association’s chief economist and senior vice president of research and business development; 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.
He said the association expects origination volume to be approximately 5% lower in 2027 than in 2026.
Refi Market Expected to Remain Weak
The MBA projects purchase mortgage originations will total approximately $1.42 trillion in 2027, a slight increase from 2026, while refinancing volume will decline to $571 billion.
Kan said mortgage rates averaged approximately 6.3% in January, but rising rates have since caused refinancing applications to decline 40% to 45% from January levels. Purchase applications are down approximately 9%.
“Once we hit the 7% range, you can see the purchase activity dropping off a little bit more significantly,” Kan said.
The Factors at Play
The association identified several factors limiting refinancing opportunities:
- Approximately half of outstanding mortgages carry interest rates below 4%, giving borrowers little incentive to refinance at current rates.
- More than 20% of outstanding mortgages have rates of 6% or higher.
- Refinancing represents slightly less than 30% of mortgage originations.
- Adjustable-rate mortgages account for approximately 10% of loan originations by number and 20% by dollar volume.
The MBA expects adjustable-rate mortgages to represent approximately 9% of loans in 2027.
“Unless we get a bigger change in rates, we do think that the refi market will stay pretty limited,” Kan said.
Lower Rates Could Produce Significant Increase in Lending
Although the MBA considers its baseline forecast the most likely outcome, Fratantoni acknowledged considerable uncertainty surrounding interest rates and the broader economy.
The association developed alternative scenarios illustrating how changes in mortgage rates could affect originations. Under the lower-rate scenario, refinancing originations would increase to approximately $1.025 trillion, compared with $571 billion under the baseline forecast.
“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.
Mortgage Lenders Continue to Face Profit Pressures
The MBA also reported that independent mortgage banks continue to face profitability challenges despite modest improvements over the past five quarters.
Walsh said net production income averaged 25 basis points, or approximately $775 per loan, during that period. That remains below the industry’s historical average of 39 basis points since 2008.
“It’s been a tough ride, folks,” Walsh said. “I’ve been tracking this stuff for over two decades, and it’s just tough going.”
However, Walsh said an analysis of lender performance revealed substantial differences between the industry’s most profitable and least profitable companies.
Q2 Results
During the second quarter of 2026:
- Top 20% of lenders: Earned 122 basis points in production income.
- Bottom 20% of lenders: Lost 76 basis points.
- Top-performing lenders: Generated an average $14,519 in revenue per loan against $9,968 in expenses.
- Bottom-performing lenders: Generated $9,651 in revenue per loan against $12,202 in expenses.
Walsh said the findings suggest that revenue generation, rather than simply controlling expenses, is a critical factor separating profitable lenders from struggling competitors.
“The big difference, folks, is on the revenue side,” she said. “There’s certainly a difference on the cost side, but it really is revenue.”
She pointed to product mix, secondary marketing income and capital markets operations as potential explanations for the differences.
Loan Closing Rates Also Affect Profitability
The MBA’s analysis also found substantial differences in the percentage of mortgage applications that ultimately close.
During the first half of 2026, approximately 68% of applications originated through retail channels resulted in closed loans, compared with 49% through consumer-direct channels.
Walsh said lenders incur substantial expenses processing applications that never result in funded mortgages.
“That means your sales staff, your fulfillment staff, everyone is spending a lot of time on ones that simply don’t close,” she said.
Industry Consolidation Remains Limited
Despite the prolonged downturn, Walsh said the mortgage industry has demonstrated resilience.
Approximately 4,600 companies continue originating mortgages nationwide, while independent mortgage banks maintain an estimated 67% to 68% market share.
The independent mortgage banking sector has lost approximately 175 companies over the past four to five years, according to the MBA.
Walsh compared the industry’s endurance to runners participating in the Chicago Marathon, which was held the same day as the presentation.
“We persist as an industry, right? We do persist, just like the marathoners today,” she said. “There are bright spots in this information. So, we leave here, and we have challenges ahead, but we persist.”
