Mortgage lending forecast to drop

Previously owned home sales are also expected to fall as banks rack up billions in losses, according to the Mortgage Bankers Association.
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WASHINGTON (AP) -- U.S. mortgage lending will fall by more than 16 percent this year, dragged down by a worsening economy and a slumping mortgage market, an industry group predicted Monday.

The Mortgage Bankers Association forecast that U.S. mortgage lending will fall 16.2 percent this year to $1.96 trillion, down from a projected $2.34 trillion last year.

The group also said sales of previously owned U.S. homes will drop by about 13 percent, while median prices fall about 2 percent. New mortgage lending would continue its downward descent in 2009, the group predicted, but home sales and prices would steady a bit.

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Home loan defaults slammed lenders last year. Wall Street banks have posted tens of billions in mortgage-related losses, and traders worry Merrill Lynch & Co. (MER, Fortune 500), Citigroup (C, Fortune 500) and JPMorgan Chase & Co (JPM, Fortune 500). will announce more losses when they report fourth-quarter earnings this week.

With defaults piling up, lenders have turned away from mortgages packaged and sold to investors and back to loans held on their books and those sold to Fannie Mae (FNM) and Freddie Mac (FRE, Fortune 500), the government-sponsored mortgage companies.

Doug Duncan, the trade group's chief economist, said in a statement that banks are strong enough to keep making mortgage loans. A recovery "may take longer this time than it has in past financial crises, but a turn for the better still appears to be a good bet later in the year," he said.

Duncan's predictions for the housing market are far gloomier than the National Association of Realtors, the trade group for real estate agents.

He predicts that existing home sales will drop by about 13 percent this year to 4.94 million before rebounding by about 4 percent in 2009. The Realtors group is forecasting about 5.7 million existing home sales, up slightly from last year.

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