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Mortgage lending to decline in 2011 amid slow refinancing

February 1, 2011 - Homeowners will refinance their homes at a slower pace this year, as mortgage rates continue to push the boundaries of affordability. Buyers, on the others, will still demand purchase mortgages to finance their relocation into a new home.

The latest projections from the Mortgage Bankers Association say total mortgage origination will reach $966 billion in 2011, down 36 percent from last year and more than 50 percent from 2009. Mortgage activity will be held back by a 66 percent drop in refinancing, primarily because many borrowers have already refinanced while mortgage rates were at their lowest levels in decades. Rates averaged 4.7 percent last year, but are expected to climb to 5.3 percent in 2011 and 5.8 percent in 2012, said the report.

Purchase mortgages are expected to rise to $614 billion in 2011 from $473 billion last year, though the report said that figure could be much higher were it not for strict credit holding back many homebuyers.

"Clearly the credit box has gotten incredibly tight. We are seeing lenders who have increased and are very stringent in their underwriting standards," John Courson, the MBA's president and chief executive officer, told Reuters.

A number of buyers nationwide have said their moving plans have been held back because harsh credit standards have left them ineligible for mortgages. Those who do qualify may have to pay higher rates or additional fees, a scenario which could be exacerbated once Freddie Mac's new risk-based pricing model takes effect this spring.
 

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