Mortgages to Drop Below $1 Trillion in 2011 to Least Since 1996

Home lending in the U.S. will fall below $1 trillion next year to the lowest level since 1996, according to the Mortgage Bankers Association.

Originations will decline to $996 billion in 2011, from a projected total of $1.4 trillion this year, the trade group said today in a statement released during its annual conference in Atlanta. Lending reached a record $3.8 trillion in 2003 as refinancing soared, with new loans remaining elevated over the next few years as home prices and sales boomed.

Rates that are unlikely to go lower even if the Federal Reserve buys more U.S. debt will cause refinancing to dissipate by the second half of next year, Jay Brinkmann, the mortgage group’s chief economist, said. A rush by U.S. homeowners to refinance at near record-low interest rates has marked a rare bright spot for the mortgage industry, under attack for choking the economy with shoddy loans and botched foreclosures.

“With these interest rates, you cannot be having a bad year in 2010,” Dan Arrigoni, chief executive officer of Minneapolis-based U.S. Bancorp’s mortgage unit, the sixth- largest U.S. home lender, said yesterday during a panel at the conference. “It will probably go down as ranking number one or two for us, both in terms of production and profits.”

Loan rates are influencing refinancing levels even more than during the last explosion in mortgages because tighter lending standards and an almost 30 percent drop in U.S. property prices since their 2006 peak are limiting consumers’ use of cash-out refinancings to tap home equity, said Brinkmann of the Washington-based Mortgage Bankers Association.

Refinancing to Drop

As new-mortgage volumes decline, lenders will need to trim their operations and face greater competition for loans that reduces lending margins, Brinkmann said.

Total home lending will drop next year because refinancing will fall “as mortgage rates increase and the pool of eligible borrowers shrinks,” the group said in the statement. More loans for home purchases will offset some of that decline, as “existing home sales recover and home prices stabilize.”

This year’s estimated $480 billion of home-purchase mortgages would be the lowest total since 1993, Brinkmann said. Next year, such lending may rise to $626 billion, as refinancing falls to $370 billion from $921 billion, his projections show.

Home-loan executives including Arrigoni and Todd Chamberlain, who oversees mortgage lending at Birmingham, Alabama-based Regions Financial Corp., said at the conference that they will be able to respond to lower originations because they expanded this year by adding temporary workers and authorizing overtime for existing employees.

Home-Purchase Lending

Ron J. McCord, chairman of Oklahoma City-based First Mortgage Co., which makes about $1 billion in loans a year, said that he “brought back retirees” who can be let go.

His company has been focusing on strengthening its home- purchase lending, including by building relationships with real- estate agents and training staff on government mortgage programs for American Indians, because “we all thought the refis could die this year,” he added.

Increases in the value of mortgage-servicing contracts as interest rates rise, extending their projected lives by reducing estimated refinancing, will help some lenders offset lower origination profits, Arrigoni and McCord said.

The average rate on a 30-year, fixed-rate mortgage fell to a record low 4.19 percent earlier this month, down from this year’s high of 5.21 percent in April, according to McLean, Virginia-based Freddie Mac.

Compared with a year earlier, existing home sales were down 19 percent in September, the National Association of Realtors said yesterday. Sales fell to a 4.53 million annual rate, exceeding the 4.3 million pace that economists forecast, according to the median projection in a Bloomberg News survey.

The Mortgage Bankers’ estimates for total lending have declined from its forecast last month for $1.45 trillion of originations in 2010 and $1.06 trillion in 2011.

To contact the reporter on this story: Jody Shenn in New York at jshenn@bloomberg.net

To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net

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