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Economists Anticipate Slower Refinancing Rate

The long-term outlook for mortgage lending volume is, well, not exactly rosy, according to the most recent numbers released by the Mortgage Bankers Association.

On the other hand, a decline in lending volume after a record-breaking refinancing boom is probably to be expected. And servicers should welcome the slower rate of portfolio churning.

Whether the glass looks half full or half empty depends upon your perspective, but here's what the MBA economics team has forecast in their latest long-term projections. Single-family residential home loan volume will total $2.379 trillion this year, down from $2.912 trillion in 2005. More tellingly, the MBA expects 2007 volume to total $2.239 trillion, a slight decline from the 2006 projection. The 2008 forecast calls for volume in the $2.330 trillion range.

The MBA's economists expect refinancing to remain relatively stable over the next three years after dropping sharply from 48% in 2005. The MBA expects refinancing to account for 38% of home loan applications this year, 34% next year and 36% in 2008.

The MBA also sees the adjustable-rate share of the mortgage market dipping over the next three years. ARMs accounted for 30% of home loans originated last year. The MBA projection has the ARM share slipping to 25% in 2006, 22% in 2007 and 21% in 2008.

After rising from 2005 levels, the MBA also foresees relative stability in mortgage rates. The average 30-year rate on home loans originated in 2005 was 5.9%, according to the MBA. The industry association sees the 30-year rate averaging 6.6% this year, 6.9% in 2007 and dipping back to 6.6% in 2008.

That reflects an expectation that the 10-year Treasury rate will average 5.0% this year, 5.2% next year and 5.0% in 2008. The 10-year Treasury averaged 5.9% last year.

The MBA also expects home sales and home construction to plateau after falling from the highs of 2005. The MBA expects existing home sales volume of 6.558 million this year, down from 7.075 million last year. New home sales are expected to remain above the one million benchmark for the three years, hovering around 1.1 million after totaling nearly 1.3 million in 2005.

The MBA expects the median home sales price on existing homes to gradually rise from $219,000 in 2005 to $250,900 in 2008. For new homes, the projections call for the median to rise from $237,300 in 2005 to $258,500 in 2008.

Housing construction is also expected to plateau at a level lower than the 2005 totals.

On the wider economic front, the MBA expects the U.S. economy to grow at a 3.6% rate this year, slightly stronger than the 3.2% rate posted last year. The MBA expects GDP growth to slow to 3.0% next year and rebound to 3.4% for 2008.

The MBA predicts that the unemployment rate will rise from 4.8% in 2006 to 5.2% in 2008.

And the MBA expects consumer prices to rise 3.2% this year, down from 3.7% in 2005. That rate will fall to 2.5% in 2007 and 2.1% in 2008 according to the projections.

The MBA's numbers are generally similar to projections from other economists who cover housing finance. Freddie Mac, for instance, predicts that one-to-four family residential mortgage originations will total 2.5 trillion this year before falling to $2.3 trillion next year and $2.4 trillion in 2008.

Freddie Mac believes that despite the anticipated drop in home loan origination volume, mortgage debt outstanding will still grow at a healthy clip. Freddie Mac said that mortgage debt outstanding grew 14% in 2005 and will rise by another 13% this year before falling to 11% next year and 10% in 2008.

AT A GLANCE: Long-Term Forecast Sees Stable Market

Year Orig. Volume Refi %

2005 $2.912 Trillion 48%

2006 $2.379 Trillion 38%

2007 $2.239 Trillion 34%

2008 $2.330 Trillion 36%

SOURCE: MBA Long-Term Mortgage Finance Forecast

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