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MBA Projects Purchase Lending Growth in 2013 as Refinances Slide

Mortgage origination is doing even better in 2012 than the ""Mortgage Bankers Association"":http://www.mbaa.org/default.htm (MBA) had anticipated, according to data from the trade group.

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The association revised its estimate of originations for 2012 upward to $1.7 trillion. The revision is nearly half a trillion dollars above MBA's $1.3 trillion projection in May this year.

Growth is expected to fall off somewhat in 2013, with MBA forecasting $1.3 trillion in mortgage originations for the year, largely driven by ""a spillover of refinances into the first half of the year.""

""We expected 2012 originations to be front-loaded in the first half of the year, with refis falling off with rate increases. Instead we saw the refinance market grow during the year due to a combination of low rates, thanks to QE3 and slowing global growth because of continuing problems in Europe, and adjustments in the HARP and FHA refinance programs,"" said MBA chief economist Jay Brinkmann. ""We expect 2013 refinance originations to play out like our original expectations for 2012, with a long tail of refis extending through the first half of the year followed by a rapid drop-off in the second half.""

Purchase originations are projected to see more activity in 2013, climbing each quarter up to $585 billion from MBA's revised 2012 estimate of $503 billion. On the other hand, refinance activity is expected to fall to $785 billion next year, down from this year's revised $1.2 trillion.

""The increase in purchase volumes will be driven by continued modest growth in the economy, an increase in [COLUMN_BREAK]

owner-occupied sales financed with mortgages as opposed to cash purchases by investors, an increase in new home sales and a small increase in average home prices,"" Brinkmann explained.

This, of course, assumes that the regulatory environment does not disrupt credit lending and that lending conditions don't tighten further.

Brinkmann also said the association expects mortgage rates to stay below 4 percent through the middle of next year, mostly do to the Federal Reserve's commitments to keep them down. Based on MBA's originations estimate, the Fed will be buying 36 percent of all mortgages originated in 2013. With originations projected to be front-loaded in the first half of the year, the Fed's purchases in the second half alone may approach half of all mortgages originated in that time.

In other economic forecasts, gross domestic product (GDP) is expected to grow, rising 2.0 percent in 2013 versus 1.6 percent in 2012. Brinkmann cited recent increases in residential fixed investment, echoing Freddie Mac's forecast earlier in the week.

According to MBA's outlook, the employment rate will hover around 8 percent until the middle of 2013 before falling to 7.8 percent by the end of the year. Employment growth is unlikely to have a major effect on housing, as ""the broader measures of unemployment that are most predictive of the demand for housing are likely to remain stubbornly high.""

There are several threats to the economy that may throw off these predictions, Brinkmann said, including ongoing economic slowdown in Europe, the slowdown in China's growth that may impact neighboring economies, and the prospect of a war involving Iran and Israel that may disrupt the region and impact oil prices. The most immediate threat, however, is the approaching ""fiscal cliff"" that brings with it large tax increases and spending cuts.

""The tax in particular would be devastating to economic growth,"" Brinkmann said. ""We believe that the entire package of tax increases and spending cuts, if left unaltered, would cut 3.5 to 4 percentage points from our growth forecast.""

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