Bonds News

UPDATE 2-US mortgage originations seen plummeting - MBA

* Originations to hit decade low due to rising rates

* Rates to rise after Fed ends securities buys in March

* Increased housing demand seen as unemployment falls

(adds details, background)

By Corbett B. Daly

WASHINGTON, Jan 12 (Reuters) - U.S. residential mortgage originations will plunge 40 percent this year to the lowest level in a decade as home refinancing demand sinks with rising mortgage rates, the industry’s main trade group said.

Lenders will underwrite $1.28 trillion in home loans this year, down from $2.11 trillion in 2009, the Mortgage Bankers Association said in its annual forecast on Tuesday. That would be the lowest since $1.14 trillion in 2000.

The forecast was downgraded from December, when the MBA predicted originations would fall about 24 percent.

New purchase originations are expected to rise slightly to $776 billion from $742 billion in 2009. Refinance originations, however, are seen plunging to $502 billion this year from $1.372 trillion last year.

Interest rates are expected to rise when the Federal Reserve at the end of March stops buying mortgage backed securities. Thirty-year home loan rates averaged 5.09 percent in the week ended Jan. 7, down from 5.14 percent a week earlier and up marginally from 5.01 percent a year ago.

The mortgage bankers see 30-year fixed rates rising to 5.8 percent in 2010, 6.2 percent in 2011 and 6.5 percent in 2012.

The forecast decline is worse than what Chase Home Mortgage, one of the largest U.S. lenders, had seen in October.

Its chief executive officer, David Lowman, had forecast mortgage originations falling to about $1.5 trillion, saying that a rise in interest rates from record lows would bring mortgage originations “to a pretty hard stop.”

Despite the rise in rates, the mortgage bankers see increased demand for housing as unemployment falls, economic growth resumes and the financial system stabilizes.

Housing starts are seen rising to a seasonally adjusted annual pace of 743,000 from 554,000 in 2009, while total sales of previously owned homes are seen rising to a 5.378 million unit pace from 5.178 million units last year.

Prices, as measured by the Federal Housing Finance Agency Home Price Index, are seen flat in 2010 after falling 4.1 percent last year. Prices in 2011 are seen rising 2.8 percent in 2011 and 5.0 percent in 2012.

The mortgage group said it expected the economy to grow 2.7 percent, from fourth quarter to fourth quarter, in 2010, compared to a 0.2 percent expected contraction in 2009.

The MBA on Tuesday also said it will encourage creation of a new type of government-guaranteed mortgage security that would be backed by privately owned, government-chartered “mortgage-credit guarantor entities” based off existing U.S. mortgage finance giants Fannie Mae and Freddie Mac.