Bankers Cut Forecast despite Repo Property Prevention Plan

Posted on July 3rd, 2009 in Foreclosure Crisis

The Mortgage Bankers Association has lowered its previously announced home loan refinancing forecast despite expectations of increased refinancing under President Obama’s repo property prevention program.

MBA lowered its home mortgage lending forecast for the year 2009 by 27 percent because of expected slowdown in home loan refinancing.

The bankers said they now expect only $2.034 trillion worth of home loans approved throughout 2009 for single- to four-family houses, a big drop from their $2.780 trillion forecast announced in March. In March, when mortgage rates kept falling, expectations were high among bankers and real estate professionals that large numbers of homebuyers will obtain loans and that homeowners will refinance under the federal repo property prevention program.

In 2008, loan originations reached $1.617 trillion, a significant drop from the total of $3.812 reached in 2003, the year a steep drop in mortgage rates led to record loan refinancing numbers.

In April and May, many homeowners were enticed to refinance their loans under the federal repo property prevention program because of record low mortgage rates – less than 5 percent – during these months.

Recently however, mortgage rates increased to around 5.25 to 5.5 percent for fixed-rate 30-year traditional mortgage loans for borrowers with excellent credit records. An increase in mortgage rates lowers the number of homeowners who could gain from loan refinancing.

In the meantime, the bankers observed that the volume of loan refinancing under President Obama’s repo property prevention program has slowed down due to the uptick in mortgage rates. The loan refinancing portion of the federal program was meant to help homeowners whose home loans were guaranteed by either Fannie Mae or Freddie Mac.

The bankers contend that while more loan refinancing applicants under the federal repo property prevention program could increase in the coming months as more helpful initiatives are launched by administration officials to step up the program, they could not find other factors that would increase home loan refinancing to the level they originally envisioned.

They added that the rise in mortgage rates is expected to discourage hesitant homebuyers to pursue home purchase plans while the drop in home prices would reduce the book value of home loans.

Last week, rates for fixed-rate 30-year conventional home loans increased to an average of 5.42 percent, an increase from the average 5.38 percent the previous week. Housing analysts are concerned that the rise in rates would discourage troubled homeowners to refinance under the federal government’s repo property prevention program.

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