Mortgage Loan Originations to Decline in 2007, Trade Group Says
Higher mortgage rates and a slowing economy are expected to reduce mortgage loan originations in 2007, the Buffalo News reports this afternoon.
The Mortgage Bankers Association, a trade group based in Washington, D.C., said it expects the total value of new home loans and mortgage refinancings to drop 5 percent this year to $2.39 trillion from $2.51 trillion in.
The association projected a further drop of 4 percent to $2.29 trillion in 2008 as mortgage refinance activity weakens further.
The total loan origination in the U.S. declined 17 percent in 2006 from more than $3 trillion in 2005, a near-record year.
Douglas G. Duncan, the group’s chief economist, said in an interview that “the theme is the markets are normalizing” after historically low interest rates sent home buying and refinancing to record levels.
According to the association’s forecast, home purchase loan originations are expected to total $1.33 trillion in 2007, down 5 percent. At the same time, refinance originations are projected to hit $1.06 trillion, a drop of 4 percent from last year.
Duncan said he expects that the Federal Reserve - which halted its long series of interest rate increases in August - will hold rates where they are through 2007, which should mean continually affordable mortgage loan borrowing costs.
“I don’t expect the Fed to do anything until mid- to late-2008,” he said.
As a result, he expects a small upward drift in mortgage interest rates, to about 6.5 percent for a 30-year, fixed-rate mortgage at year’s end from the current 6 percent to 6.25 percent.
The group does not predict delinquencies and foreclosures, which have been climbing of late, especially in the bad credit mortgage loan market, where borrowers generally have less-than-stellar financial histories.
Duncan said there could be a “modest increase” in delinquencies and the overall rate of foreclosure, especially as the interest rates reset for the first time on some $400 billion in adjustable-rate mortgages.