2011 home loans seen shrinking to 1997 level
WASHINGTON (Reuters) - U.S. residential mortgage lending is expected to shrink to levels not seen since 1997 as demand for home refinancing plunges due to higher interest rates and tighter lending standards, the industry's main trade group said on Wednesday.
Lenders are seen underwriting $966 billion in residential mortgages this year, a 36 percent drop from last year's $1.505 trillion and less than half of 2009's $1.995 trillion level, the Mortgage Bankers Association said.
The last time total mortgage originations were as low was 1997, when they totaled $833 billion. The weakness is expected to continue next year, when they are seen at $976 billion.
The MBA said refinancings would plunge 66 percent to $352 billion this year from $1.032 trillion last year. Their share of the total market is seen shrinking to 36 percent this year from 69 percent last year.
"Clearly the credit box has gotten incredibly tight. We are seeing lenders who have increased and are very stringent in their underwriting standards," said John Courson, the MBA's president and chief executive officer.
Tighter standards are in place because lenders "are just afraid" and "giving themselves room to protect themselves against future repurchases," Courson added.
Mortgage originators are required to buy back loans they have sold to the secondary market if those loans go south and are later deemed to have been insufficiently underwritten.
The mortgage bankers do expect an increase in loans for home purchases, to $614 billion this year from $473 billion last year. Still, that is below 2009's $700 billion level.
Interest rates for 30-year fixed rate mortgages are seen rising to 5.3 percent this year and 5.8 percent in 2012, the MBA said. The average 30-year fixed rate mortgage was at 4.7 percent in 2010.
The industry forecast comes just weeks ahead of the release of a widely anticipated white paper from the Obama administration on ways to overhaul the entire U.S. housing finance system, including what role the government will play in the mortgage market.
"The private market has not returned. The government continues to support approximately 90 percent of the market through (the Federal Housing Administration and mortgage finance giants Fannie Mae and Freddie Mac) and that is not sustainable," said Michael Berman, chairman of the MBA.
(Reporting by Corbett B. Daly; Editing by Andrea Ricci and Dan Grebler)
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