ORLANDO, FLA. - Despite what the Mortgage Bankers Association predicting will be the third highest year on record for mortgage originations at $2.78 trillion, the numbers are expected to begin a downward trend next year with $2.26 trillion expected for 2006, decreasing further to $2.15 trillion in 2007, according to speakers at the MBA's 92nd Annual Convention and Expo 2005 held here last week. Rising mortgage rates are a factor in the expected decline, with the 30-year fixed mortgage rate seen rising from its current 6.15% average to 6.65% in 4Q06 and 6.75% in 4Q07.

Purchase loans, however, expected to total $1.49 trillion this year, will remain relatively stable going forward at $1.47 trillion in 2006 and $1.46 trillion in 2007. Not surprisingly, the major drop off is expected in refinance activity, as $1.28 trillion this year, is seen dropping to $785 billion in 2006 and $689 billion in 2007. MBA Chief Economist Doug Duncan said he expects rising rates and declining refinance loan volume to continue for the next three years. Duncan added that, with the total refinance volume declining, the share of cash-out refinancing is projected to rise.

As the yield curve flattening has reduced ARM production, it is expected to continue declining through the middle of next year, according to the MBA. ARM production is expected to pick up again in late 2006 and 2008, as a considerable percentage of hybrid ARMs reach their reset dates and are subsequently refinanced.

Home price appreciation remains strong, with median existing home prices rising 10.8% this year, but the rise in new-home prices is expected to be much lower with median new-home price growth slowing to 3.8%. Home price growth next year and in 2007 should still be robust, but is expected to be more sustainable at 5% across all homes, according to the MBA.

(c) 2005 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.

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