MBA Sees up to $1.5 Billion of ARM Resets Next Year

At the group's annual convention here, Mortgage Bankers Association chief economist Douglas Duncan said that the best estimates find between $1.1 trillion and $1.5 trillion of adjustable-rate mortgages will reset in 2007. There are three possibilities for those loans: refinancing, going into default or resetting. He thinks just between $600 billion and $700 billion will refinance, which is already accounted for in MBA's projection. As for defaulting, Mr. Duncan said many of those ARMs have already reset at least once and the biggest threat of default is on the first reset. The remaining $500 billion to $800 billion of ARMs will just reset, he said. Overall, refinancings will fall from $1.07 trillion in 2006 to $807 billion this year.

The MBA is predicting total volume for 2007 of $2.12 trillion, down 14% from a projected $2.46 trillion this year.

The 2006 volume will be down 19% from the $3.03 trillion originated in 2005.

In the macroeconomic forecast, former MBA chief economist Lyle E. Gramley said the biggest drags on economic growth right now are housing and automobile production.

At the same time the two men were making their presentation, the Federal Open Market Committee was conducting the first day of a two-day meeting. The Fed is expected to do nothing, he said.

In fact, it is likely the Fed could keep rates at the same level through 2008, even though there are members of the committee who would like to increase the fed funds rate.

But as for the possibility the Fed will lower rates, Mr. Gramley declared that is not even on the radar screen.

Mr. Duncan prefaced his remarks by saying the general housing cycle from peak to trough to rebound is between 24 and 30 months. Right now, the cycle should come back around to the top by mid-to-late 2007.

In making a forecast, the market is segmented in to three pieces, he said. Those are condominiums, new homes and existing home sales.

Condominiums are looked at first. Because of the nature of those properties, which are less likely to be owner-occupied, they are more sensitive to market movements, Mr. Duncan said. Thus, they are precursor to what will happen in other segments.

Rates for the 30-year fixed-rate mortgage should remain at around 6.3% to 6.4% for the rest of the year, rising to 6.7% by the end of 2007 and 6.8% by the end of 2008.

Existing home sales will fall by 9% for this year from 2005 and will go down another 8% the following year. In the same period, new home sales will fall 18% this year and then another 8% next year.

As for loan delinquencies, Mr. Duncan said there would be a modest rise, but that rise would be driven in part by the fact that most mortgage portfolios are reaching the peak years for loans to become delinquent, namely the third, fourth and fifth year past origination.

Another reason for the increase is the growth of the subprime market, but he added that subprime lending only makes up 12% of the loan volume.

Unemployment is a key factor for loans to become delinquent. But unemployment is remaining steady and there has been job growth. Therefore, this offsets any negative factors, Mr. Duncan said. (c) 2006 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com http://www.sourcemedia.com

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