Mortgage originations will fall to their lowest level in five years in 2012, according to the latest forecast by the Mortgage Bankers Association (MBA).

Lenders are expected to write less than $1.1 trillion in new loans this year, “all due to a decline in refinancing,” Michael Fratantoni, the MBA’s vice president of research, said at the group’s annual National Secondary Mortgage Conference in New York.

(The data division of National Mortgage News is projecting $1.3 trillion of originations this year, a figure that is 18% higher than MBA’s. NMN surveys 200 lenders a quarter.)

Even as refinancings continue to dwindle — from $858 billion in 2011 to $682 billion this year and $357 billion in 2013 — the MBA expects the purchase money market to improve. It is now forecasting $682 billion in purchase loans this year, up from $404 billion in 2011, and $706 billion next.

But Fratantoni admitted that the association’s projections “depend entirely where (mortgage) rates go from here.”

Right now, rates are tracking 0.5% “below where we thought they would be,” which is one reason for the group’s optimism. “Interest rates are taking the European elections hard,” said chief economist Jay Brinkmann. “As long as we are a safe haven, that will keep rates down.”

Brinkmann said purchase activity is “picking up,” particularly in the Midwestern states that traditionally have a higher home ownership rate than the national average.

Fratantoni pointed out that the purchase sector is dominated by “absolutely plain vanilla” 30-year fixed-rate product, whereas borrowers who are refinancing are moving into 10-, 15- and even 20-year loans with shorter amortization periods.

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