During 2009, U.S. residential production is expected to reach $2.034 trillion, the Mortgage Bankers Association reported today.

In March, the Washington, D.C.-based trade group projected $2.781 trillion in originations for this year.

The $747 billion decline was attributed to slowing purchase activity and dismal levels of activity with the Home Affordable Refinance Program — which has generated just 13,000 loans compared to expectations of between 1.5 million and 2.0 million loans.

“In March we boosted our forecast of mortgage originations by over $800 billion following the drop in interest rates associated with the Federal Reserve’s announcement on the Treasury bond and mortgage-backed securities purchases programs as well as the implementation of HARP,” MBA Chief Economist Jay Brinkmann said in the statement. “While the Fed has been successful in reducing the spread between conforming mortgage and Treasury rates through its purchase of agency MBS, it has not been successful in maintaining lower Treasury yields.”

Brinkmann went on to explain that record budget deficits, a declining U.S. Dollar and fears of future inflation have scared away investors, pushing mortgage rates higher and dampening origination activity — especially refinance originations.

MBA’s forecast for refinance volume fell to $1.297 trillion from $1.960 trillion.

Purchase financing is expected to account for $0.737 trillion of this year’s activity, down from March’s projection of $0.821 trillion. The decline in the purchase forecast was attributed to higher-than-expected declines in home values and an increase in cash purchases by investors.

Earlier this month, Freddie Mac projected originations of $2.700 trillion this year, including around $1.917 billion in refinances. That forecast was barely changed, however, from a month earlier despite a big jump in mortgage rates and a decline of more than half in home loan applications since April.