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Small Rate Dip Won't Restart Refi Boom

The refinance boom is over. Finished. Kaput. May it rest in peace.

Its death was confirmed last month by David Berson, chief economist at Fannie Mae. That was before rates fell just below 6% in the first week of July, according to the Mortgage Bankers Association of America. But even with that rate dip, refinancing accounted for only 36% of loan applications, a far cry from the peak of the boom.

"The latest refinance boom is officially over," Mr. Berson said during his annual spring outlook briefing for housing and mortgage reporters.

Historically, refinancing is in full flower when the weekly refi index published by the Mortgage Bankers Association hits 2,000. Earlier this month, the index slipped to 1,400, the lowest reading in more than two years.

Mr. Berson said lenders shouldn't expect many more refi applications, at least not anytime soon. What refi volume there will be in 2004 has "already occurred or been applied for," he said.

With refi business free-falling 63% to just $985 billion, the economist now expects total originations to dip from $3.83 trillion last year to $2.27 trillion this year.

But given the expected record-high total home sales and continued robust price gains, he is projecting that purchase originations will rise about 8% and reach a new all-time high of $1.28 trillion.

"The decline will come solely from the falloff in refinance originations," he said.

Next year will be a different story, though, as home sales begin to slow. Mr. Berson believes loan production will drop to the $1.7 trillion-$1.8 trillion level.

Mr. Berson predicts that the slowing pace of refi activity means that total mortgage originations will fall from $3.83 trillion last year to $2.27 trillion this year.

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