Further home loan declines expected

The mortgage industry won’t halt its slide any time soon, a trade group said, predicting that the volume of home loans issued would fall 18% next year and 6% in 2009.

Although the Mortgage Bankers Assn.’s forecast, to be released today, offers no hope that a housing turnaround is near, the industry still foresees a future for sub-prime loans -- the sector that triggered a broad credit crunch, the organization’s chief economist said.

“It will come back,” Doug Duncan said in an interview in which he described a shift to far stricter lending standards for people with spotty credit.

The gloomy mortgage outlook reflects the depressed flow of cash to lenders from increasingly risk-averse investors, as well as slower overall economic growth.

“We have not yet seen fully the impact of the credit shock to the U.S. and world economies, and the severity of that impact will depend on how long it takes for the markets to return to normal functioning and where credit spreads ultimately settle,” Duncan said.

Mortgage originations are expected to decline 15% this year to $2.31 trillion from $2.73 trillion last year.

The trade group expects sales of existing homes to decline 12% this year and 10% next year before rising 5% in 2009. The organization forecasts 2% price drops this year and next, with prices flattening out in 2009.

With the current glut of homes for sale, “any significant increase in home building is probably years off,” Duncan said.

The housing downturn has been most severe in the sub-prime market, where mortgages are held by borrowers with spotty credit or low incomes.

Duncan, however, said the sub-prime niche wouldn’t dry up entirely. But he said sub-prime borrowers would have to make sizable down payments before securing a mortgage loan and provide documentation of their incomes, employment histories and credit standing.