Spring 2008 issue of Horizons

INDUSTRy u

MORTGAGE BANKERS

A Challenging Year for Originations Originators continued to struggle in 2007 under very tough market conditions. A poor housing market, combined with turmoil in the credit markets, resulted in double-digit declines in originations in 2007. Although final numbers have not yet been published, the consensus among Mortgage Bankers Association of America and Fannie Mae economists is that 2007 origination volume will be down approximately 15 percent from 2006 levels. Our early indications are that St. Louis lenders’ total origination activity will be down approximately 12 percent in 2007. Sales of new and existing homes remained very sluggish in 2007. The turmoil in the credit markets, which resulted in tighter lending standards and fewer mortgage products, certainly hurt the housing market this past year. Unfortunately, the projected declines in

2007 total origination activity are on top of significant decreases in 2006. As a result, we anticipate that St. Louis originations for 2007 will be at their lowest level since 2000. Purchase originations will be leading the decline in 2007. Our early indications are that purchase originations in St. Louis will be down approximately 15 percent in 2007. This projected decrease in 2007 follows an approximate 10 percent decline in 2006 in St. Louis purchase originations. The one bright spot in the origination landscape may be refinance activity. As we neared the end of 2007, the yield on the benchmark 10-year Treasury note moved toward 4 percent. This change should provide an increase in normal rate-based refinancings of fixed rate mortgages. In addition, a significant number of loans will face resets toward the beginning of 2008. Hopefully, interest rate cuts by the Federal Reserve will restore more liquidity to the financial markets and provide meaningful opportunities for refinance activity. Although refinance activity appeared promising toward the end of 2007, refinancings for the entire year were sluggish. At this point, RubinBrown’s indications are that refinance originations in St. Louis will decline

29 u spring 2008 issue