The Mortgage Bankers Association (MBA) expects home loan originations to fall to their lowest level in a decade this year, as interest rates go higher and the unemployment picture worsens. The trade group released its mortgage financing forecast Tuesday, and if its calculations are correct, we’ve got a long and bumpy road ahead before the housing market truly recovers.

MBA projects mortgage originations to drop 40 percent to $1.28 trillion dollars in 2010. With those numbers, it would be the industry’s worst year since 2000, when originations totaled $1.14 trillion.

While the volume of loans made for home purchases is expected to climb by 5 percent, to $776 billion this year, refinances are expected to fall more than 60 percent, to $502 billion. That’s because interest rates are forecasts to rise when the Federal Reserve stops buying mortgage securities in March.

By the end of 2010, MBA projects rates for 30-year loans to hit 5.8 percent, jumping to 6.5 percent by the end of 2012.

MBA says sales of existing homes in 2010, though, should increase by nearly 4 percent compared to 2009. This year’s projected 5.378 million-unit sales pace would put sales of previously owned homes at 2001 levels.

Home prices should rise slightly through this year, MBA says, but won’t return to more typical rates of appreciation until 2012.