A woman looks at real estate listings outside a Berkshire Hathaway Home Services office in Montclair, N.J.

Adam Jeffery | CNBC

Rock-bottom mortgage rates are causing a surge in mortgage refinances, so much so that the industry’s largest trade group is revising sharply higher its origination forecasts for the year.

The Mortgage Bankers Association is now forecasting total mortgage originations of approximately $2.61 trillion this year — a 20.3% gain over 2019’s $2.17 trillion and a jump from last month’s forecast of $1.99 trillion.

Refinance originations are driving the change, now expected to double earlier MBA projections, and jumping 36.7% from last year to about $1.23 trillion.

Purchase originations are now forecast to rise 8.3% to $1.38 trillion, up from the previous forecast of $1.32 trillion.

While all this demand is a boon to the industry, lenders have been struggling to keep up with the volume in just the last two weeks. The average rate on the 30-year fixed fell to a record low last week, according to Freddie Mac, causing a 224% jump in refinance applications annually. Mortgage bankers were already seeing strong demand from an early start to the spring housing market.

They do not expect the refinance boom to end any time soon, because of the expectation that the Federal Reserve will lower its interest rates significantly in the next few months, keeping longer-term rates low for most of the year. The Fed cut rates 50 basis points last week.

While mortgage rates do not follow the Fed specifically, they do loosely track the yield on the 10-year U.S. Treasury. 

“We’re going to have this initial rush, but even as rates rise, this refinance boom is going to be extended because the mortgage rates the borrowers see are going to stay extremely low,” said Mike Fratantoni, chief economist for the MBA. 

The biggest concern is how the mortgage industry will handle all the new and unexpected volume. 

“Even before this last couple of weeks, we thought volume was reasonably strong, going into the spring homebuying season. Lenders were already near capacity,” added Fratantoni. 

They are now trying to hire new workers, but there are not a lot of experienced people out there, so those they do hire will require training, which will take time. Both homebuyers and those looking to refinance are already seeing longer wait times for loan processing and even to get a loan officer on the phone. That will likely get worse before it gets better. 

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