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Purchase Outlook Darkens

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Fannie Mae’s latest projection for the 30-year fixed-rate is 20 basis points better than last month’s estimate. But while the improved forecast for rates helped inflate the current quarter’s origination outlook, a steeper decline in production is now seen for the second half of the year and in 2012. The culprit: purchase-money transactions.

The secondary lender adjusted its estimate of overall second-quarter fundings by all residential lenders to $273 billion from April’s estimate of $271 billion.

The slightly improved outlook is likely the result of the projection for the 30-year fixed-rate mortgage, which was cut to 4.9 percent in this month’s housing forecast from 5.1 percent last month. But the 30-year is expected to reach 5.1 percent in the third quarter then rise around 10 basis points each quarter thereafter until late next year.

The rising rates, though lower than predicted last month by the Washington, D.C.-based company, prompted the forecast for second-half 2011 fundings to be cut by $39 billion from the earlier outlook to $465 billion.

Most of the deterioration was concentrated in purchase activity, with Fannie slashing its second half estimate to $307 billion in purchase originations from last month’s prediction of $343 billion.

Refinance production is expected to come in at $159 billion during the last half, lighter than $162 billion expected in the earlier forecast.

Fannie bumped its projection for 2011 production to $1.041 trillion from $1.038 trillion in last month’s report.

But next year’s originations are now expected to come in at $1.021 trillion versus $1.105 trillion previously predicted. The 2013 outlook was cut to $1.298 trillion from $1.321 trillion.

The share of loan applications that are for an adjustable-rate mortgages are expected to rise from 5 percent in the first quarter to 6 percent this quarter then sit at 7 percent through the end of the year.

Fannie has the nation’s single-family portfolio falling to $10.380 trillion from $10.435 trillion in the first quarter. The portfolio will continue falling through 2013 — when it is expected to be just $9.984 trillion.

The second-quarter’s mortgages outstanding included $9.476 trillion in first liens.

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