March 24 (Bloomberg) -- The Mortgage Bankers Association boosted its forecast for 2009 home-loan originations by $800 billion to $2.78 trillion as a wave of refinancing and low interest rates spur homeowners to seek out new loans.

Refinancing will total $1.96 trillion in 2009 and purchase originations will increase to $821 billion, the group said today in a statement.

Total originations may rise to the fourth-highest on record, driven by a drop in fixed mortgage rates and last week’s Federal Reserve announcement that it will triple its planned purchases of mortgage-backed securities, the Washington-based trade group said.

“The effect of having the Fed bid in the market for a sustained period is enough to create a refinance incentive for a tremendous number of homeowners,” said Jay Brinkmann, MBA’s chief economist and senior vice president. “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.”

U.S. home prices fell 6.3 percent in January from a year earlier, the smallest decline in five months, as lower mortgage rates began to spur demand, according to the Federal Housing Finance Agency in Washington.

Housing Stabilizing

Housing prices “aren’t that far from where we need to be if the economy stabilizes and starts growing again,” Susan Wachter, professor of real estate finance at the University of Pennsylvania’s Wharton School, said in a Bloomberg Radio interview today.

The Fed said March 18 it would increase purchases of mortgage-backed securities this year by up to an additional $750 billion, adding to the $500 billion it pledged between January and June. The central bank also said it would buy as much as $300 billion in Treasuries during the next six months.

The moves are aimed at giving “greater support to mortgage lending and housing markets,” the Fed governors said in their March 18 statement.

The average U.S. rate on a 30-year fixed mortgage fell to 4.96 percent during the week ended Jan. 15, the lowest in Freddie Mac data that goes back to 1971. Last week the 30-year rate was 4.98 percent and the 15-year fixed rate was 4.61 percent, the lowest since 2003, the McLean, Virginia-based mortgage buyer said.

Total existing home sales in 2009 may drop 2.5 percent from 2008 to 4.5 million units, the Mortgage Bankers said. New home sales will decline about 39 percent to 293,000 units.

To contact the reporter on this story: Kathleen M. Howley in Boston at kmhowley@bloomberg.net.

Last Updated: March 24, 2009 18:37 EDT