Fall 2006 issue of Horizons

A Disappointing Start for Originations INDUSTRY MORTGAGE BANKERS

In terms of refinance activity, national refinance volume is forecasted to decrease in 2006 by approximately 45 percent. Our early projections are that St. Louis mortgage lenders will experience a similar decline in refinancings in 2006. With 30- year fixed rate mortgages anticipated to increase to 6.6 per- cent or higher during 2006, normal rate-based refinancings of fixed rate mortgages are practically non-existent. The refi- nancing of upward-adjusting adjustable rate mortgages into fixed rate mortgages or other loan products will at least pro- vide some refinance volume. Nationally, refinances are expected to account for approximately 40 percent of total origination volume in 2006, down from approximately 48 per- cent in 2005. RubinBrown's early indications are that St. Louis refinances will be fairly consistent with national levels and will account for approximately 35 percent of total St. Louis origination volume. Frank Hogg, CPA

As the result of a modest decline in the housing market and higher mortgage rates, originations decreased significantly during the first half of 2006. In St. Louis, RubinBrown's indi- cations are that local originations in the first quarter of 2006 were at their lowest level since the first quarter of 2000. Although originations began picking up in late spring and early summer, volume levels were still disappointing. On a national basis, originations declined consistent with decreas- es in the St. Louis marketplace. FannieMae and Mortgage Bankers Association of America (MBA) economists continue to project an approximate 25 percent decrease in national originations for 2006. The projected decline in 2006 of 25 percent in national origi- nations consists of a 4 percent forecasted decline in pur- chase volume and a 45 percent forecasted decline in refi- nance activity. The projected 4 percent decline in purchase originations to approximately $1.45 trillion represents a ray of hope for mortgage lenders. In a historical context, the pro- jected $1.45 trillion of purchase volume in 2006 would repre- sent the second highest level of purchase fundings ever. With housing activity continuing to decrease and mortgage rates continuing to rise, the million-dollar question is whether pur- chases will reach the forecasted level in 2006. In St. Louis, RubinBrown's early indications are that local pur- chases will decrease more than the 4 percent decline project- ed on a national basis. During the first quarter of 2006, pur- chase volume was down approximately 10 percent with decreases in both builder activity and existing home sales. In St. Louis, the trend continues with purchase growth lagging behind the growth of national purchase originations. Although some improvement in St. Louis purchases was noted in the second quarter (and further improvement should continue in the third quarter), we still anticipate St. Louis purchase vol- ume will decrease by at least 5 percent in 2006.

47 • summer 2006 issue