The Mortgage Bankers Association (MBA) expects economic growth to continue through the rest of 2009 before slowing in the first half of 2010. Unemployment is expected to climb to 10.2 percent by the middle of 2010 before beginning to moderate as economic growth resumes sustained growth in the second half of the year.

Mortgage originations should reach $1.5 trillion in 2010. Modest increases in home sales should drive purchase originations, but refinance originations are expected to decline as mortgage rates rise.

"The recession is behind us but the effects of the recession will linger for some time in the form of higher unemployment, and lower levels of business investment and home construction,” said Jay Brinkmann, MBA's chief economist and senior vice president for research and economics. “One of the big questions regarding growth will be the behavior of consumers. The large losses of consumer wealth in the form of reduced home values and stock market losses, as well as the absolute losses of income resulting from unemployment, reduced employment and the fear of unemployment have constrained consumer spending."

Brinkmann said that one of the biggest unknowns still to be discovered is the level and volatility of interest rates. While the lack of inflation, high unemployment and excess capacity in the economy should hold interest rates down, there is a lot of uncertainty regarding rates immediately following the termination of the Federal Reserve's purchase of mortgage-backed securities.

“No doubt the Fed will do its best to minimize adverse effects, but the elimination of these purchases will put upward pressure on all long-term rates as well as the spread between mortgage rates and Treasuries,” he said.  “The size of any resulting rate move will largely determine the size of the refinance market."


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