Mortgage Daily

Published On: March 24, 2009
Refi Tidal Wave WarningMBA projects $2.781 trillion in U.S. originations this year

March 24, 2009

By MortgageDaily.com staff

A surge in expected refinance originations will more than offset lowered expectations for purchase production, a new projection proclaims. The boost in refinance business will, however, stress the weakened U.S. mortgage system.Mortgage originations will reach $2.781 trillion this year, according to a forecast today from the Mortgage Bankers Association. Last year’s production came in around $1.619 trillion.

In October, the trade group projected 2009 originations of just $1.670 trillion.

The latest outlook suggests this year’s production will be the fourth highest on record.

Tumbling mortgage rates and additional activity under the Home Affordable Refinance program were cited for MBA’s improved outlook.

The average 30-year fixed-rate mortgage has fallen to 4.98 percent as of Freddie Mac’s Primary Mortgage Market Survey for the week ending March 19 from as high as 5.25 percent in the survey for the week ended Feb. 5.

Earlier this month, Freddie itself projected just $2.400 trillion in 2009 originations, up from an estimated $1.700 trillion last year. A spokeswoman said the secondary lender didn’t have an immediate comment about how mortgage originations might be impacted by recent government plans to buy up hundreds-of-billions of dollars in good and toxic mortgage-related assets.

MBA said refinances are expected to rise to $1.960 trillion this year, from an estimated $0.765 trillion in 2008. Its prior refinance estimate for 2009 was $1.130 trillion.

Refinances topped out in 2003 at $2.532 trillion.

But the stronger flow of refinance activity will meet with resistance because of a decreased supply of warehouse financing, a diminished mortgage broker channel and an increased scrutiny on files for mortgage fraud, MBA Chief Economist Jay Brinkmann said in the statement.

In addition to the factors outlined by the MBA, the mortgage industry infrastructure has been devastated by the collapse of hundreds of mortgage companies and the consolidation of the securitization network. From 2006 through now, MortgageDaily.com has tracked the failure or closing of 355 mortgage-related companies.

MBA warned that heightened refinances will add to the workload of mortgage servicers — who are already overburdened with default management and loss mitigation. Servicers will need to process the paid loans for release, and input the new originations in their systems.

MBA’s prediction for purchase activity was lowered to $0.821 trillion for this year from a prior projection of $0.851 trillion. Last year’s estimated purchase mortgage transactions were $0.854 trillion.

Continued deterioration in home prices, further declines in home sales and falling average loan amounts were all factors in the lowered expectations for purchase activity.

“Even with amazingly low interest rates, lower home prices and the first-time homebuyers tax credit, it is unlikely that we will see an increase in overall home sales until we see some stabilization of employment,” Brinkmann said.

But a report yesterday from the National Association of Realtors indicated that February existing home sales were up 5.1 percent from January.

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