Residential originations will decline by almost 30% next year to $1.38 trillion as rising interest rates put a crimp on new originations, according to a new forecast from Fannie Mae.

The GSE believes originations will total $1.95 trillion this year. (The Quarterly Data Report, a National Mortgage News publication, is forecasting $2.1 trillion in fundings this year.)

Last month the Mortgage Bankers Association reduced its 2010 forecast to about $1.6 trillion. Mortgage lenders had one of their worst years of the decade in 2008 ($1.6 trillion in fundings) when the worldwide credit crisis came to a head in the fourth quarter.

Fannie Mae's economists predict the interest rate on 30-year fixed-rate loans will average 5.42% in 2010 compared to 5.07% this year.

Refinancings will comprise only 47% of originations, compared to 67% this year. "We continue to expect a 10% increase in home sales in 2010,"

Fannie Mae chief economist Doug Duncan says in his monthly Economic Developments update report. He believes FHA will be the beneficiary due to congressional action to extend the first-time homebuyer tax credit and expand it to buyers in the move-up market. "The tax credit will likely be a boon for the Federal Housing Administration [(FHA)], whose share of purchase mortgages has increased significantly during the past year," he said.

FHA insured $170.6 billion in purchase mortgages in fiscal-year 2009 with 78.5% going to first-time homebuyers.

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