MBA drops origination forecast by more than $700 billion for 2009.(Briefing Book)(Mortgage Bankers Association)(Report)

Top economists at the Mortgage Bankers Association now forecast this year's residential origination volume to be $2.03 trillion--a drop of more than $700 billion from MBA's earlier forecast. In a June 22 release, MBA said the shortfall comes from $84 billion in lower purchase originations with the rest coming from weaker rate/term refinancings and "very low volumes in the Fannie Mae and Freddie Mac Home Affordable Refinance Program (HARP)."

Just two weeks after the revised MBA forecast was released, Fannie and Freddie's regulator--the Federal Housing Finance Agency (FHFA)--announced a loosening of the qualifying loan-to-value (LTV) rules under the HARP program. Initially, HARP would only apply in cases where the LTV ceiling was 105 percent. On July 1, the LTV ceiling was raised to 125 percent, according to FHFA. The earlier restriction on LTV had limited the effectiveness of the HARP program in many areas where home prices have plunged more dramatically.

Given slower-than-anticipated refi volume, MBA's new forecast now calls for $737 billion in purchase originations and $1,297 trillion in refinance originations.

The June revisions basically unwind some changes made in March to MBA's forecast. MBA Chief Economist Jay Brinkmann stated, "In March we boosted our forecast of mortgage originations by over $800 billion following the drop in interest rates associated with the Federal Reserve's announcement on the Treasury bond and mortgage-backed securities purchase programs as well as the implementation of HARP."

Brinkmann said, "The March increase in refinance originations was driven by two factors. The first factor was the drop in interest rates. The subsequent increase in interest rates, however, began to choke off the refinance wave in May--much earlier than anticipated in the March forecast. The second factor was the large volume of loans expected from HARP. While generally accepted estimates were that around 1.5 [million] to 2 million borrowers might avail themselves of this program, with many more potentially eligible, to date only about 13,000 loans have been completed, according to press reports."

Brinkmann added, "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."

As for the weaker purchase originations in the newly revised forecast, Brinkmann identified two causal factors. He said while the number of home sales have been higher than expected, home prices have fallen more, thus leading to smaller loan balances. He added that the larger share of distressed sales or investor purchases of houses has grown the share of all-cash purchase transactions.

The earlier forecast called for $821 billion in purchase originations, which has now been scaled back to $737 billion.

MBA is now projecting total existing-home sales will reach 4.8 million this year, a decline of 1.2 percent from 2008. New-home sales are forecast to total 352,000--a drop of roughly 27 percent from last year, according to MBA.

Print Get the Mag Weekly Updates