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Fannie Raises, Freddie Lowers Origination Outlook

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Economists at Fannie Mae raised their quarterly forecast for residential fundings by U.S. lenders, while Freddie Mac economists trimmed their expectations — bringing the two firms’ quarterly projections more in line. The disparity between their annual outlooks also fell. Meanwhile, nearly $200 billion in residential mortgage debt is expected to be wiped out this year.

U.S. originations are projected to come in at $369 billion during the first quarter, Fannie reported in its February housing forecast. The secondary lender raised its first-quarter forecast from $347 billion predicted last month.

In contrast, secondary rival Freddie Mac this week lowered its first-quarter projection to $375 billion from $381 billion a month earlier. But the differing moves brought the two outlooks closer together and suggest an average projection of $372 billion.

Fannie’s forecasted production is down substantially from $551 billion funded by U.S. lenders in the fourth-quarter 2009. In the first-quarter 2009, domestic residential originations were $428 billion.

The current period includes $137 billion in purchase activity and $232 billion in refinance activity, bringing the refinance share down to 63 percent from nearly two-thirds in the fourth quarter. But the projected first-quarter refinance share was boosted from 60 percent in last month’s forecast.

The Washington, D.C.-based company sees total originations easing to $363 billion in the second quarter as the refinance share plunges to 39 percent. By the final period of the year, volume is expected to fall to $288 billion.

Home loan production for all of 2010 is forecasted at $1.338 trillion, lower than last month’s $1.353 trillion forecast and falling from $1.976 trillion funded during the previous year. Freddie’s forecast was also lowered for this year, to $1.6 trillion from $1.75 trillion projected during January.

Refinances are expected to account for 44 percent of this year’s business, Fannie predicted, sinking from more than two-thirds in 2009 and just over half in 2008.

Single-family mortgages outstanding finished last year at $10.795 trillion, according to Fannie. Residential debt is projected to be $10.728 trillion in the first quarter and bottom out at $10.608 trillion at the end of the year.

The Dec. 31 figure included $9.747 in first liens.

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