MBA Lowers 2009 Home Loan Forecast

The ""Mortgage Bankers Association"":http://www.mortgagebankers.org (MBA) announced Monday that it has lowered its forecast of mortgage originations in 2009 to $2.03 trillion, a drop of over $700 billion from its March forecast.
The association explained that $84 billion of the drop is due to lower purchase originations and the other $616 billion-plus is due to fewer rate and term refinancings and very low volumes within the Fannie Mae and Freddie Mac Home Affordable Refinance Program (HARP).
For the two separate segments of home loans, MBA is now forecasting $737 billion in purchase originations and $1,297 billion in refinance originations for the year.
In March, MBA boosted its forecast of mortgage originations by more than $800 billion, based on high hopes that the Federal Reserve's plan to buy up Treasury bonds and mortgage-backed securities (MBS) would keep mortgage rates low for the duration of the year. But according to MBA's Chief Economist Jay Brinkmann, the continuation of low rates is dependent on other private investors staying in the market. Brinkmann says these investors have shied away from bonds and securities due to expectations of future inflation and the declining value of the dollar, resulting in a short-lived reduction in mortgage rates.
Brinkmann added that the Fed has likely decided its purchases are not as effective as originally thought in maintaining lower long-term Treasury rates and may not be worth the risks entailed in building up a large Fed balance sheet that will need to be reduced in the future.
MBA also upped its forecast in March based on high expectations for refinance originations. Brinkmann says this increase was driven by two factors, the first being the drop in mortgage interest rates. The subsequent increase, however, began to choke off the refinance wave in May, much earlier than anticipated, Brinkmann explained.
The second factor was the large volume of loans expected from HARP. While generally accepted estimates were that around 1.5 to 2 million borrowers would benefit from the program, with many more potentially eligible, to date only about 13,000 home loan refinances have been completed. Brinkmann said, while the number of loans completed under this program is likely to increase, it is difficult to craft a scenario where origination volumes would come anywhere close to reaching the numbers originally envisioned, particularly in the current higher-rate environment.
Likewise, Brinkmann says MBA has lowered its estimate for purchase mortgage originations for several reasons. First, while home sales have been higher than expected, home prices have fallen more than expected leading to smaller loans. And second, the large share of distressed sales or homes purchased by investors has resulted in the share of all cash home purchases being higher than normal. Brinkmann explained that even with higher projected home sales for all of 2009, the lower average home price and higher cash share have combined to lower projected volume of purchase originations.
Brinkmann said MBA now expects existing home sales in 2009 to total 4.8 million units, a drop of 1.2 percent from 2008. MBA projects new home sales will be 352,000 units, a decline of about 27 percent from 2008. The association also said median home prices for both 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.