Mortgage Originations Set to Fall 40%

Written By Brian Hicks

Posted January 12, 2010




In case you are wondering how it is possible for home prices to fall another 10% in 2010, the Mortgage Bankers Association offered up some more clues today.

According the group, mortgage originations are expected to fall by 40% this year as the Fed exits the market.

Needless to say, that will make for far fewer loan applications as rates jump by most estimates much closer to 6%.

From Reuters by Corbett Daly entitled: US mortgage originations seen plummeting

“U.S. residential mortgage originations will plunge 40 percent this year to the lowest level in a decade as home refinancing demand sinks with rising mortgage rates, the industry’s main trade group said.

 Lenders will underwrite $1.28 trillion in home loans this year, down from $2.11 trillion in 2009, the Mortgage Bankers Association said in its annual forecast on Tuesday. That would be the lowest since $1.14 trillion in 2000.

 The forecast was downgraded from December, when the MBA predicted originations would fall about 24 percent.

New purchase originations are expected to rise slightly to $776 billion from $742 billion in 2009. Refinance originations, however, are seen plunging to $502 billion this year from $1.372 trillion last year.

Interest rates are expected to rise when the Federal Reserve at the end of March stops buying mortgage backed securities. Thirty-year home loan rates averaged 5.09 percent in the week ended Jan. 7, down from 5.14 percent a week earlier and up marginally from 5.01 percent a year ago.

The mortgage bankers see 30-year fixed rates rising to 5.8 percent in 2010, 6.2 percent in 2011 and 6.5 percent in 2012.

The forecast decline is worse than what Chase Home Mortgage, one of the largest U.S. lenders, had seen in October.

Its chief executive officer, David Lowman, had forecast mortgage originations falling to about $1.5 trillion, saying that a rise in interest rates from record lows would bring mortgage originations “to a pretty hard stop.”

The math on this one is pretty straightforward: Higher rates =Lower home prices.

It is as simple as that.

40% fewer originations industry-wide ????!!!??!!!

That’s huge.

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