The Mortgage Bankers Association (MBA) believes residential originations will fall to just $1.28 trillion in 2010 -- a 33% decline from last year and the industry's worst year since 2000.

In early December, the trade group had forecast loan production of $1.5 trillion but lowered its estimate Tuesday morning. (According to National Mortgage News, the industry funded $1.9 trillion in 2009.)

The MBA now believes 30-year FRMs will average 5.8% this year and recent increases in rates have already "choked off" refinancings. Refis will fall to $166 billion in the first quarter compared to $363 billion in 4Q. However, home sales will see a steady improvement.

"We do expect purchase originations in 2010 to be about 5% higher than in 2009," MBA chief economist Jay Brinkmann told reporters.

A few months back, veteran mortgage analyst David Olson of Access Research said some large lenders were bracing for just $1 trillion in production for 2010.

Despite the poor outlook on originations, many mortgage lenders are continuing to earn strong profits (thanks to the wide yield curve). The profit picture also improved, in part, because of a lack of competition. In 2000, mortgage bankers funded just over $1 trillion in new loans.

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