MBA Boosts Mortgage Originations Forecast By Over $800 Billion

The Mortgage Bankers Association (MBA) has sharply increased its prediction of the volume of mortgages that will originate this year, increasing its 2009 forecast by 800 billion, a 67 percent increase over previous estimates.

The boost is entirely due to an expected increase in refinancing driven by historically low interest rates and the recently announced Fannie Mae and Freddie Mac mortgage refinance programs. At the same time, the MBA has slightly lowered its forecast of mortgage originations tied to home purchases.

The MBA now expects originations to total $2.78 trillion, which would make 2009 the fourth highest originations year on record, behind only 2002, 2003 and 2005.

Interest rates drop on Fed announcement

Already low mortgage interest rates dropped still further following last week's announcement by the Federal Reserve of plans to make major purchases of Treasury bond and mortgage-backed securities. Jay Brinkmann, MBA's Chief Economist and Senior Vice President of Research and Economics, said mortgage rates could reach lows not seen since the early 1950s and late 1940s.

"While the Fed has not announced that it is targeting specific rates for either 10-year Treasury rates or rates on 30-year fixed-rate mortgages, the effect of having the Fed bid in the market for a sustained period is enough to create a refinance incentive for a tremendous number of homeowners," Brinkmann said.

MBA originally forecast that 2009 refinancings would total $1.13 billion, up from $765 billion in 2008. With the recent moves by the Federal Reserve and the Fannie/Freddie program, refinancings are now expected to reach $1.96 trillion.

Home purchase mortgages expected to fall

At the same time, the MBA has predicted home purchase mortgage originations in 2009 will fall more than previously expected, to $821 billion. The original prediction of $851 billion represented only a slight decline from the $854 billion in home purchase mortgages that originated in 2008. The new, lower figure is the result of a combination of continued declines in home sales and lower prices on the homes that are sold, leading to smaller mortgages on average than in recent years.

"Even with amazingly low interest rates, lower home prices and the first-time homebuyers tax credit, it is unlikely that we will see an increase in overall home sales until we see some stabilization of employment," Brinkmann said.

Continued slide in existing home sales, prices

MBA projects that total existing home sales for 2009 will drop 2.5 percent from 2008 to 4.8 million units. New home sales will decline about 39 percent in 2009 from 2008 to 293,000 units. Median home prices for new and existing homes will continue to fall, dropping by about five to six percent from 2008 levels.