Recovery from plunging mortgage volume — including an expected 50% drop in refinances this year — is likely to take years. Meanwhile, the astronomical growth of FHA mortgages has led to greater scrutiny and stricter standards, along with steeper insurance rates to counteract default risk. See the following article from HousingWire for more on this.
Mortgage volumes in 2010 will not reach the same levels as 2009 as the slide toward the collapse-curve bottom continues, according to iEmergent, the market research and advisory firm for the financial services industry.
The firm projects the purchase-to-refinancing ratio will reach a 49% to 51% split in 2010. Forecasters predict between $531bn and $643bn in refinancing volume in 2010. Refinance volumes will be less than half of 2009 levels, and lenders relying on those transactions in 2009 will be at a great risk in 2010, according to the report.
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The amount of mortgages generated peaked in 2005, dropped slightly in 2006 and started its descent in 2007, according the iEmergent US composite purchase mortgage conversion rate (PMCR). The PMCR, which measures the rate at which the mortgage market generates new loans, should hit bottom in 2010, but an accelerated “V-curve” is not in the cards. Instead, the PMCR and owner-occupied buying won’t recover to normal long-term trend lines for another five years, according to the report.
In 2009, mortgages insured by the Federal Housing Administration (FHA) increased from 5% to 40% of the market share. As the default risk continues to rise in the FHA-insured portfolio, so will housing prices, according to iEmergent. To counteract the risk, FHA will tighten its standards, lower LTV levels and expand its oversight activities. FHA already increased insurance premiums by 50bps to 2.25% early in January. Although these actions allowed the US Department of Housing and Urban Development to trim its budget to $41.6bn, it should press purchase volumes down as well, according to the report.
“Mortgage lending is currently standing on weak and shifting sands,” the iEmergent report reads. “The sluggishness of housing and home financing, which appeared to have reached its bottom nadir in 2009, will remain stuck in a low and shaky trough in 2010.”
This article has been republished from HousingWire. You can also view this article from HousingWire, a mortgage and real estate news site.