Fed action spurs refi boom

The Federal Reserve's initiatives to keep mortgage rates down are spurring a rush to refinance that will test the operational capacity of lenders, but low rates won't translate into higher home sales unless unemployment stabilizes, the Mortgage Bankers Association said today.

The MBA has dramatically revised its forecast for 2009 mortgage refinancings, saying it expects lenders will fund $1.96 trillion in refinance loans this year.

That's an $824 billion increase from last month's forecast, when the MBA said it expected $1.13 trillion in refinancings in 2009. Last year, by comparison, lenders refinanced only $765 billion in loans.

Driving the rush to refinance are mortgage rates not seen since the early 1950s and 1940s, said Jay Brinkmann, MBA's chief economist.

Most homeowners with mortgages originated before the second half of 2008 are going to have at least a 50-basis-point incentive to refinance for several months or more, Brinkmann said (100 basis points equals 1 percent).

The Obama administration has estimated that as many as 5 million homeowners will be able to refinance mortgages owned or guaranteed by Fannie Mae and Freddie Mac in coming years through its "Making Home Affordable" initiative.

But Brinkmann doesn't see low rates translating into increased home sales until the economy regains its footing.

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

The MBA has lowered its expectations for 2009 purchase-mortgage originations to $821 billion, down from $851 billion a month ago.

At this time last year, the MBA was forecasting $934 billion in purchase-mortgage originations, and for sales of existing homes to rebound to 5 million. The latest estimate reflects continued declines in home sales and lower prices, leading to smaller mortgages on average than in recent years, the MBA said.

Sales of existing homes are now projected to fall 2.5 percent from 2008 levels, to 4.79 million. Last month, the MBA was projecting 4.91 million existing-home sales in 2009. (The National Association of Realtors currently forecasts that sales of existing homes will hit 4.93 million this year.)

While the MBA's projections for purchase mortgages continue to fall, the refi boom is expected to push total mortgage originations to $2.78 trillion in 2009, which would be the fourth-highest total on record. Refinancings would account for 69 percent of mortgage originations, compared with about 50 percent in recent years. ...CONTINUED

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