18% fall seen in '08 mortgage originations

BOSTON — The nation's more than $2 trillion home-mortgage business won't halt its slide anytime soon, with mortgage originations expected to fall 18 percent next year and decline an additional 6 percent in 2009, the Mortgage Bankers Association (MBA) predicts.

And although a forecast scheduled to be released today at the organization's annual convention offers no hope that a housing turnaround is near, the industry still foresees a future for the subprime market that helped trigger the broader downturn, the MBA's chief economist said.

"It will come back," Doug Duncan said in an interview in which he described a shift to far stricter lending standards for people with spotty credit.

The gloomy mortgage outlook is driven by the shrinking flow of cash to lenders from increasingly risk-averse investors, as well as slower overall economic growth.

"We have not yet seen fully the impact of the credit shock to the U.S. and world economies, and the severity of that impact will depend on how long it takes for the markets to return to normal functioning and where credit spreads ultimately settle," Duncan told reporters in a preview of his speech today.

Total mortgages written are expected to decline nearly 15 percent this year to $2.31 trillion from $2.73 trillion last year. Originations are expected to fall at a slightly steeper 18 percent next year, then begin to decline at a slower 6 percent rate in 2009.

The erosion is expected to ease as a projected 5 percent rise in mortgages for people buying homes in 2009 partially offsets an expected 18 percent drop-off that year in mortgages for homeowners who refinance.

The 2009 increase in originations is based on the MBA's expectations that home sales and prices will begin picking up that year.

The MBA expects sales to hit bottom in the third quarter of next year, after existing-home sales decline a projected 12 percent this year to 5.72 million units sold. Existing-home sales are expected to decline a further 10 percent next year before growing by 5 percent in 2009.

The MBA forecasts a 2 percent home-price decline both this year and next year, with prices flattening out in 2009.

With the national glut of homes for sale, "any significant increase in homebuilding is probably years off," Duncan said.