Stop the Lending--Mortgages Grinding to Halt in 2009

Those who think that the credit crisis put the brakes on mortgage lending this year may be surprised to see mortgage levels deteriorate even more in 2009.  Many experts expect to see the pace of both commercial and residential mortgage loan activity grow even more sluggish next year.

Experts are now predicting that mortgage levels will not level off or expand over the next few months, but will, instead, decline through 2009. Some economists believe that the total value of new mortgages in the U.S. will drop below $1.3 trillion next year, which would represent the slowest mortgage lending the industry has experienced in nearly 20 years. The research and consulting firm iEmergent, for example, revised its mortgage lending outlook for 2009. The company had originally foreseen mortgage activity to the tune of $1.53 trillion, but it now offers lower estimates of not more that $1.3 trillion.

Mortgage levels dropping

The Mortgage Bankers Association (MBA) seems somewhat more optimistic, but one could argue that their perspective is biased because all of their members derive their livelihood from mortgage lending. The MBA cites a target of  $1.6 trillion in anticipated mortgage loan origination for 2009. While that may seem high, it's still lower than predictions that the MBA itself made six months ago. That means that regardless of which numbers are more accurate, everyone seems to be in agreement that the mortgage outlook is much more pessimistic than it was prior to the severe credit and stock market meltdowns that shook the global economy back in September.

While most predictions now call for mortgage levels to hit bottom next year and then trend upward, finally regaining stability and traction in 2010, those estimates depend on other factors that may be less predictable. If the nation goes into a deep recession, or if deflation begins to undermine efforts to get the economy back on track, mortgage loan activity may take an even greater hit and continue to falter. Without wages and income, consumers have no ability to qualify for mortgage loans.  And if the economy is in deep recession, businesses will have no need to borrow for commercial real estate acquisitions, expansions, or upgrades.

Commercial mortgage lending

More than $35 billion in commercial real estate debt expires next year, too, and unless banks resume normal lending, the holders of that debt will likely default. Some $55 billion of debt will need to be rolled into new commercial mortgage loans between now and 2012, and under normal circumstances, lenders would easily and eagerly absorb those new loans. But in today's restrictive environment, refinancing that much debt may be difficult, if not impossible. That could lead to a fresh wave of mortgage delinquencies and real estate foreclosures in the commercial sector where things have been relatively stable so far. Hopefully, the taxpayer-funded bailout programs at the Treasury will work, though, and we'll see an end to our mortgage troubles in 2009.