Mortgage loan fundings will fall 16 percent in 2008, dropping below the $2 trillion mark for the first time since 2000, according to the latest forecast by the Mortgage Bankers Association.
Sales of new and existing homes will see declines of a similar magnitude, the group said. The MBA forecasts that existing-home sales will fall 13 percent in 2008, to 4.94 million, and that sales of new homes will decline 15 percent, to 666,000 units.
The MBA expects total mortgage originations will fall to $1.96 trillion in 2008, down from a projected total of $2.34 trillion in 2007. Purchase-mortgage originations are expected to drop even more sharply this year, to $955 billion, an 18 percent pullback from 2007.
Although the bankers’ group forecasts an additional 4 percent decline in total mortgage originations in 2009, to $1.88 trillion, sales of new and existing homes should rebound, the group said.
The MBA projects sales of existing homes will grow by 4 percent in 2009, and sees a 7 percent uptick in sales of new homes. That could help purchase-mortgage originations grow by 5 percent, to $1 trillion, in 2009, the group forecasts.
MBA Chief Economist Doug Duncan expects the Federal Reserve will cut the federal funds overnight rate at the end of the month and say less in its public pronouncements over the next few months about the threat of inflation and more about heading off a recession.
Duncan said rates on 30-year fixed-rate mortgages will stay low by historical standards, climbing to 6.2 percent by the fourth quarter of 2008 and edging up slightly through 2009.
A clearer picture of the losses companies that financed the housing boom is expected to emerge in coming weeks as lenders and investment banks post fourth-quarter results.
Although some companies are expected to disclose massive write-downs, recognizing those losses could prompt the Federal Reserve to make dramatic cuts in short-term interest rates, while persuading investors that they are coming to grips with their exposure to the mortgage meltdown.
Citigroup may report write-downs of up to $24 billion and announce layoffs of as many as 24,000 employees when it files fourth-quarter results Tuesday, CNBC reported. Citigroup’s new CEO, Vikram Pandit, is seeking $15 billion from investors, including Saudi Arabian Prince Alwaleed bin Talal, the report said.
The New York Times reported Friday that Merrill Lynch is poised to report up to $15 billion in write-downs related to investments in mortgage-backed securities and collateralized debt obligations. Merrill Lynch also has a new chief executive officer, John Thain, who is attempting to raise $4 billion from U.S., Middle Eastern and Asian investors, the Times said. Merrill Lynch will report fourth-quarter and 2007 results Thursday.
Many observers expect that the Federal Reserve, which is making $60 billion in short-term loans available to banks and financial institutions through two auctions this month, will move to cut short-term interest rates for a fourth straight time when the Federal Open Market Committee meets Jan. 29 and 30th. Federal Reserve Chairman Ben Bernanke raised expectations of a rate cut in a speech last week.
“The principal concern of the current credit crisis lies in the possibility that banks will eventually run out of capital,” Duncan said in a statement. “Banks are running up against capital limits as they write down the value of assets at the same time they are putting loans on their balance sheets because the markets for securitized products are essentially closed.”
But banks were well capitalized when the credit crunch hit, Duncan said, so “the danger of a sharp and widespread contraction of credit availability does not seem imminent.” Although financial markets may take longer to correct than in past crises, “a turn for the better still appears to be a good bet later in the year,” Duncan said.
In other news, Connecticut Attorney General Richard Blumenthal has reportedly sent 30 subpoenas to investment banks and ratings agencies as part of an investigation of the marketing of investments backed by subprime loans.
The investigation is focused on whether banks that marketed the investments withheld information about the risks posed by the loans, and therefore provided deceptive or misleading disclosures to rating agencies and investors, Bloomberg News reported. New York officials are conducting a similar probe.
Also on Monday, subprime lender NovaStar Financial Corp. said it was laying off all but about 30 of 200 remaining employees and would “surrender to appropriate regulatory authorities or otherwise allow to lapse all licenses and other governmental authorizations relating to its mortgage origination and brokerage businesses.
On Friday, Friedman, Billings, Ramsey Group Inc. announced that its mortgage originating subsidiary, First NLC Financial Services LLC, would liquidate its assets under Chapter 11 bankruptcy protection.
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