Bloom is off the refi boom

Rising interest rates and a slow start to the Obama administration's Making Home Affordable loan refinance program have the Mortgage Bankers Association retreating from an earlier prediction of a big surge in mortgage originations in 2009.

In March, the MBA boosted its forecast for 2009 mortgage originations by $824 billion, saying it expected $1.96 trillion in refinancings would push total loan originations to $2.78 trillion.

Now, the MBA is taking back more than $700 billion of that projected increase, saying refinancings will total closer to $1.3 trillion and that total originations will barely break the $2 trillion mark.

With the government on a path to issue billions in Treasuries to finance record budget deficits, investors have shied away from purchasing government debt because of fears of inflation and a decline in the dollar, the MBA said. That's driving up long-term interest rates, including mortgages, and has cooled the demand for refinancings.

Another factor driving the MBA's more pessimistic projections is the initial pace of Making Home Affordabe loan refinancings. The MBA had been operating under the assumption that 1.5 million to 2 million borrowers might take advantage of the program, but only about 13,000 loans have been financed to date.

"While the number of loans completed under this program is likely to increase, it is difficult to craft a scenario under which origination volumes would come anywhere close to reaching the numbers originally envisioned for the program, particularly under our higher-rate environment," the MBA said. ...CONTINUED

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