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
The MBA also lowered its estimate for 2009 purchase mortgage originations from $821 billion to $737 billion. While home sales have been higher than expected, prices are down, which is likely to dent the total dollar-volume of purchase loan originations.
MBA now projects sales of previously owned homes will total 4.8 million units in 2009, down 1.2 percent from 2008. New-home sales of 352,000 units are forecast, a decline of about 27 percent from 2008. The MBA expects median home prices for new and existing homes will likely continue to fall, dropping by about 10 percent from 2008 levels, but leveling off in 2010 as the economy improves.
The MBA forecasts interest rates will continue to rise through the end of the year, and through 2010. While the Federal Reserve has been able to keep the "spread" between conforming mortgage rates and Treasury rates low through purchases of mortgage-backed securities, mortgage rates haven’t been immune from the surge in Treasury rates.
The Fed purchased about 85 percent of all mortgage-backed securities issued in March, April and May by Fannie Mae, Freddie Mac and Ginnie Mae, and 50 percent of long-term Treasuries. But the Fed is now approaching a self-imposed $300 billion ceiling on Treasury purchases, which it may be reluctant to increase, the MBA said.
Adding to the pressure for higher long-term Treasury yields is the expectation that the Fed will at some point have to withdraw the substantial liquidity it has injected into the financial markets to keep a lid on expected inflation, the MBA said.
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