SAN DIEGO — Despite sub-5% mortgage rates and signs that home prices have bottomed out in some places, executives and economists are decidedly downbeat about the future of the country's mortgage industry as well as the housing market it depends on.
The Mortgage Bankers Assn. said Tuesday that it expected home foreclosures in the U.S. to continue to rise before leveling off late next year. The reason: Job losses have replaced adjustable subprime loans as the main cause of defaults.
Jay Brinkmann, the group's chief economist, predicted that unemployment would rise through next summer, causing delinquencies to rise. And because of the loss of income, it will be increasingly difficult to keep troubled borrowers in their homes by modifying their loans, he said.
As a result, the foreclosure rate is expected to increase "through the latter part of next year," Brinkmann said in San Diego at the trade group's annual convention. "And even when it starts to come down, it's going to come down very slowly."
The association's meeting this year has been marked by mixed emotions.
Loan originators are celebrating a mortgage-refinancing boom created by a decline in interest rates on fixed-rate loans to less than 5%. But that refi surge is expected to ease next year as rates rise. Even with a forecast 12% increase in home-purchase loans, overall mortgage volume is expected to drop from about $2 trillion this year to about $1.5 trillion in 2010, Brinkmann projected.
Mortgage customer-service operations continue to struggle with a rising tide of delinquencies and surging demand for loan modifications.
And nearly everyone at the convention seemed worried about the effect of job losses.
"In the crisis of people who can't pay their mortgages, we have yet to see the peak," said David B. Lowman, chief executive of the mortgage unit at JPMorgan Chase & Co., one of the Big Three lenders along with Bank of America Corp. and Wells Fargo & Co.
More than 40% of the mortgages Bank of America makes these days are for home purchases, Barbara Desoer, the company's mortgage chief, said in an interview. But that doesn't mean a universal recovery in housing is underway, she said -- only that prices have been beaten down so far that in some markets first-time buyers and investors are stepping in to buy perceived bargains.
Those markets include inland areas of California, but not certain other battered areas, Desoer said. For example, in Florida, another big boom-and-bust state, there's no sign that the bottom has been reached anywhere, she said.
Economists at BofA project that prices nationally still have 5% or so to fall before bottoming out, possibly in the second quarter of next year. Even then, Desoer said, the bank will be on guard for a double-dip recession that could keep the market depressed.
Dean Schultz, CEO of the Federal Home Loan Bank of San Francisco, said he hoped things would look better in a year, but he wasn't optimistic.
"I think we're at the midpoint of a difficult period," he said, "which will stress all organizations."
The mortgage group projected that:
* Fixed mortgage rates would average 5% in the fourth quarter this year and increase to 5.6% by the end of 2010. One of the biggest uncertainties is how much rates will rise when the Federal Reserve stops buying mortgage bonds from government-backed agencies in March. Brinkmann said it appeared that the purchases had shaved four-tenths of a percentage point off rates.
* Home price declines would abate on a national level by early 2010, but the timing will vary by state and home value, with the biggest demand for entry-level homes. That divergence is already evident in California, where Inland Empire prices appear to have stabilized but prices are still falling in more expensive areas, the mortgage group said.
* Loans to buy homes would total $718 billion this year, down 2% from $731 billion last year, and then rise 12% in 2010 as existing-home sales recover and prices stabilize.
* Refinance mortgages this year would total $1.25 trillion, up about 60% from $777 billion in 2008. As rates rise, refinance activity is likely to decrease to $745 billion in 2010, the mortgage group said.