Mortgage originations could fall dramatically next year by one-third, even as purchase-money lending increases, the Mortgage Bankers Association (MBA) said at its annual convention in Atlanta.

Driven by a decline in refinancings, the MBA is projecting total originations to dip under $1 trillion in 2011. By the time the numbers are tabulated for 2010, the group expects loan production to hit the $1.4 trillion level this year.

MBA Chief Economist Jay Brinkmann's forecast is for the refinance share of originations to fall drastically, from 66% in 2010 to 37% in 2011 and 26% in 2012.

In terms of dollar volumes, purchase originations for 2010 will be $480 billion, about 28% below the 2009 level of $665 billion. But they are expected to rise by some 30% in 2011 as existing home sales recover and home prices stabilize, and should rise again in 2012, topping off at $877 billion.

Brinkmann said refinance originations will end 2010 at $921 billion, a decline of 31% from $1.3 trillion in 2009. Refinance activity will fall by 60% more in 2011, to about $370 billion, as loan rates rise and the pool of eligible borrowers shrinks. By the end of 2012, the refinance share should be down to $310 billion, the MBA projected.

The MBA economist expects fixed mortgage rates to average about 4.4% in this year's fourth quarter and move up to 5.1% by the end of 2011. And a year after that, rates are projected to rise again to 5.7%.

Despite the tax-credit-driven boost earlier this year, Brinkmann is projecting that existing home sales will be down 8% this year. But he is looking for a modest uptick next year and then a big 16% jump in 2012.

New home sales for 2010 will be down by about 13% relative from 2009. But Brinkmann said the bottom was reached in the third quarter, so he is looking for "a slow recovery" in 2011. Because the base number is so low, though, the forecast is for a 20% jump in new home sales next year and then a 40% gain the following year.

In other housing news, the Standard & Poor's/Case-Shiller house price index report showed that home prices are under pressure again.

Home prices began to sag again in August as 17 of the 20 cities in the Case-Shiller HPI posted month-to-month declines.

Still, home prices have risen 1.7% compared to a year ago, according to the firms' 20-city HPI released Tuesday morning. But the index fell 0.2% in August from July -- the first decline since the expiration of the homebuyer tax credit on April 30.

David M. Blitzer, chairman of S&P's index committee, called the August report "disappointing" because prices fell broadly in so many different markets.

"At this time, it does not seem that any of the markets are hanging on to the temporary momentum caused by the homebuyers' tax credits," Blitzer said.

The economist added that during the winter, "We'll be working through the politics of foreclosures."

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