Originations Could Fall Below $1.3 Trillion in 2009: Report

Everyone on the origination side of the fence these days wants to know just what kind of market they’re going to face next year. The answer isn’t one many likely want to hear, if one forecasting firm is correct: originations could fall to levels not seen since the 1990s in 2009, according to a forecast released Wednesday by Des Moines, Iowa-based iEmergent. The research and consulting firm said that total originations could fall below $1.3 trillion next year — a stunningly low number — as many of the nation’s housing markets reel from the effects of a recession that could prove to cut deep. To show how steep of a drop-off that is, consider that total originations below the $2 trillion mark haven’t been recorded in the mortgage industry since 2000. Macroeconomic factors have clearly driven a sharp update to iEmergent’s estimates for next year, given that the group had originally forecast a low range of total mortgage originations at $1.53 trillion back in September. Now, that range runs from just $1.283 trillion to $1.348 trillion — with the latter number being the good scenario, relatively speaking. That estimate is clearly more pessimistic than current expectations at the Mortgage Bankers Association for next year, as well. The trade group forecast 2009 total originations at $1.66 trillion at a recent conference in San Francisco this past October. “We expect the total volume to reach the bottom in 2009 and turn upward in 2010, but lenders should be prepared for volumes in many of their local markets and communities to drop even further if the recession deepens, unemployment levels continue to rise, home prices fail to stabilize and consumer confidence remains dismal,” said Dennis Hedlund, president of iEmergent. “Periods of increased uncertainty and volatility are precisely the times to become more focused on local market dynamics, not less.” Purchase mortgages, in particular, are expected to tank next year: iEmergent predicted total purchase volume of just 4.29 million loans for $707.7 billion during 2009, a five percent slide from expected 2008 levels. The company does not expect purchase money loans to recover to long-term historical trending until 2012. Hedlund said lenders have had ample time over the past 24 months to re-structure and prepare for the road ahead, by reducing costs and improving efficiency to meet the demands of a changed-market. “4.3 million purchase loans and 7.5 million total mortgage transactions or more is not a total collapse,” he suggested. But it does require lenders to know which markets are strong, and which markets are not; unlike years past, lenders need to be able to effectively target where loan demand is strong in order to capture market share. “Now it is time for [lenders] to look outward and tailor their lending strategies to the local markets where they need to compete effectively,” he said. For more information, visit http://www.iemergent.com. — Paul Jackson contributed to this story. Write to Kelly Curran at [email protected].