The residential loan market is looking a little better these days, according to a new forecast from Fannie Mae.

The GSE’s chief economist Doug Duncan revised upward his mortgage origination outlook for 2011 by almost 3%, reflecting an unexpected surge in refinancing activity in the second quarter.

Mortgage rates have declined over the past two months and Duncan estimates lenders will refinance $187 billion of home loans by the time the second quarter is over, compared to $221 billion in the first quarter.

In Fannie’s May housing forecast, second quarter refinancings were estimated at only $108 billion.

"We lowered projected purchase originations modestly and refinance originations were revised somewhat higher for the current quarter, in response to lower mortgage rates," Duncan said Monday morning.

In his June forecast, Duncan raised his estimate for refinancings to $565 billion for the 2011 calendar year from $473 billion in his May forecast. The Fannie chief economist expects the refinancing share will total 53% this year, compared to 45% in his previous monthly forecast.

He also lowered his projections for purchase originations by 11% to $505 billion for 2011. Overall, Fannie economists are projecting that originations will total $1.07 trillion this year, down from $1.5 trillion in 2010.

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