* Higher rates to shrink overall lending
* MBA sees refinancing falling 66 percent in 2011
* Purchase loans to increase, but below 2009 totals
(Recasts, adds MBA CEO quote, background)
By Corbett B. Daly
WASHINGTON, Jan 26 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 FNMA.OB and Freddie Mac FMCC.OB)
and that is not sustainable," said Michael Berman, chairman of
(Reporting by Corbett B. Daly; Editing by Andrea Ricci and Dan