Mortgage Volume To Drop Below $2 Trillion in '08

Washington, DC, January 14, 2008—Mortgage production is expected to drop by 16% to $1.96 trillion this year, according to the Mortgage Bankers Association.

If true, it would be the first time since 2000 that total mortgage originations fall below $2 trillion, the MBA said Monday.

"The principal concern of the current credit crisis lies in the possibility that banks will eventually run out of capital," said Doug Duncan, MBA's chief economist, in a press release.

"Banks are running up against capital limits as they write down the value of assets at the same time they are putting loans on their balance sheets because the markets for securitized products are essentially closed," Duncan said.

Duncan also said the banking system entered the tight credit market well capitalized, so there’s a good chance the financial markets will turn up later in the year.

MBA has forecast that economic growth will continue to slow through the first half of 2008 but pick up in the second half of the year.

MBA expects housing starts and home sales will continue to fall and bottom out at the end of the third quarter.

The association also said existing home sales will decline 13% to about 4.94 million units in 2008, compared with 2007. But it projects that sales will pick up 4% in 2009. Likewise, sales of new homes will decline 15% to 666,000 units but sales should pick up 7% in 2009.

The interest rate for 30-year fixed-rate mortgages is expected to rise and reach 6.2% by the fourth quarter, Duncan said.