Expect 'significant declines' in mortgage originations

Mortgage Banking, June, 2008

Mortgage market watchers should forget about any more help from the Federal Reserve in the form of interest-rate cuts even as they should expect "significant declines" in mortgage originations through the rest of this year and beyond, according to MBA's head of research.

Jay Brinkmann, MBA's vice president of research and economics, told attendees at MBA's National Secondary Market Conference & Expo in Boston in May that despite the current credit crunch, the Fed's priority continues to be guarding against inflation, even as the value of the U.S. dollar is a growing concern to monetary policy-makers.

"Are we in a recession?," asked Brinkmann. "If we're not, we can at least see it from here. We're that close."

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Even if the Fed were so inclined, further rate cuts would likely be of marginal value, given that the economic slow- down is due to a credit squeeze.

"We're dealing with a bank run that does not involve banks," said Brinkmann. "Does beggaring investors in order to force them to take on more risk work if investors are one step away from sticking their money into mattresses because they can't assess the risk?"

The good news regarding the effect of the economic-stimulus package is that the package will increase personal consumption spending sufficiently to keep gross domestic product numbers on the right side of recession levels, said Brinkmann.

The bad news, he said, is that the package will do little to impact housing because it will have little effect on employment.

Brinkmann noted that MBA's forecast calls for "just under $2 trillion" in mortgage finance activity this year as total home mortgage originations are expected to come in at $1.99 trillion in 2008, then drop to $1.76 trillion in 2009 and drop again to $1.67 trillion in 2010.

"As we go into 2009, purchase originations will increase, but the refinance area is of most concern because of declining home prices," said Brinkmann. "Overall industry volume is not that exciting."

MBA also predicts new-home and existing-home sales to drop by 14 percent and 27 percent, respectively, while the forecast calls for a 40 percent drop in single-family starts and a 5 percent drop in multifamily starts this year versus 2007.