New mortgages swell as Fed drives down rates: MBA
NEW YORK (Reuters) - Mortgage demand has ballooned after Federal Reserve actions drove down U.S. borrowing costs, and could propel home loans created this year to the fourth highest total on record, the Mortgage Bankers Association said on Tuesday.
The industry group revised its forecast up by more than $800 billion to $2.78 trillion, driven mainly by refinancing loans.
"This boost is due entirely to the expected increase in mortgage refinancing activity motivated by the drop in interest rates following last week's Federal Reserve announcement on the Treasury bond and mortgage-backed securities purchase programs and the Fannie Mae and Freddie Mac refinance programs," the MBA said in a statement.
Average fixed 30-year mortgage rates have fallen to around 4-3/4 percent since the Fed more than doubled its commitment to buy mortgage bonds to up to $1.25 trillion this year.
The Fed also doubled its planned purchases of agency notes to $200 billion and said it would $300 billion of Treasuries, all aimed at pressing down borrowing costs and keeping them low to revive housing and the economy.
"The vast majority of mortgages originated before the latter part of 2008 are probably going to have at least a 50 basis point refinance incentive for at least the next several months, with mortgage rates hitting lows not seen since the early 1950s and late 1940s," Jay Brinkmann, MBA's chief economist, said in the statement.
The MBA, meanwhile, lowered slightly its forecast of mortgage originations tied to home purchases. Mortgage origination refers to new home loans issued either to refinance or to fund a purchase of a home.
Large volumes of riskier supbrime and jumbo mortgages boosted the previous record loan creation years of 2002, 2003 and 2005 had large amounts of subprime loans and jumbo loans.
The 2009 originations will be almost entirely mortgage eligible for purchase by Fannie Mae and Freddie Mac, or for FHA insurance, the industry group said.
Refinancings could reach $1.96 trillion this year and purchases would amount to $821 billion.
Mortgages on homes sold would likely be smaller on average than in recent years as prices have fallen.
Also, "even with amazingly low interest rates, lower home prices and the first-time homebuyers tax credit, it is unlikely that we will see an increase in overall home sales until we see some stabilization of employment," Brinkmann said.
MBA forecasts total existing home sales will drop 2.5 percent in 2009 to 4.8 million units. New home sales will decline about 39 percent to 293,000 units. Median home prices for new and existing homes will slide by 5 to 6 percent.
(Reporting by Lynn Adler. Editing by Walker Simon)
