MBA Lowers 2009 Origination Forecast

rtgage Bankers Association (MBA) has lowered its forecast of mortgage originations in 2009 to $2.03 trillion – a drop of over $700 billion from its March forecast. The trade group says $84 billion of the drop is due to lower purchase originations and the rest is due to lower rate/term refinancings and very low volumes in the Fannie Mae and Freddie Mac Home Affordable Refinance Program (HARP). MBA is now forecasting $737 billion in purchase originations and $1.297 trillion in refinance originations. The March forecast was bumped up in light of the Federal Reserve's decision to increase its Treasury bond and mortgage-backed securities (MBS) purchases, as well as the implementation of HARP. MBA's chief economist, Jay Brinkmann, explains that investors have shied away from Treasuries on the expectations of future inflation and the declining value of the dollar, causing the effect of the Fed's moves on mortgage rates to be short-lived. The Fed has been unsuccessful in maintaining lower Treasury yields, Brinkmann notes. In the past three months, the central bank's purchases have totaled about 85% of new MBS issuance for the government-sponsored enterprises. Its purchases of long-term Treasuries during the same time period has equaled about 50% of new issuances. "Given the high issuance volume of Treasuries in June, the Fed is likely approaching its self-imposed ceiling of $300 billion and may be reluctant to increase its current commitment to purchase long-term Treasuries," he says. Refinance originations, which increased in March, slowed in May as a result of higher interest rates, earlier than the MBA's March forecast anticipated. HARP volumes have also been lower than expected, Brinkman says. "While generally accepted estimates were that around 1.5million to 2 million borrowers might avail themselves of this program – with many more potentially eligible – to date, only about 13,000 loans have been completed according to press reports," he says. "While the number of loans completed under this program is likely to increase, it is difficult to craft a scenario under which origination volumes would come anywhere close to reaching the numbers originally envisioned for the program, particularly under our higher-rate environment. The MBA's revised 2009 projection for purchase mortgage originations, $737 billion, is the result of two findings. Home prices have fallen more than expected, leading to smaller loans, and the high volume of investor-purchased properties has caused the share of all-cash purchases to be higher than normal. "Therefore, even with higher projected home sales for all of 2009, the projected lower average home price and higher cash share have combined to lower projected volume of purchase originations," he says. The MBA forecasts existing-home sales for the year to total about 4.8 million units and new-home sales to total about 352,000 units. The group envisions median home prices continuing to fall, dropping by about 10% from 2008 levels, but stabilizing again in 2010. SOUR


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