Major Drop in Loan Originations Sends Markets Back to Levels Not Seen Since 2000

By Kyle Chezum Updated on 6/1/2011

 

For the most part, mortgage origination levels have been on an upswing since early last year, with more and more mortgages being originated each quarter.  Certainly the overall number of originations has been low, but the trend has been one of increasing loan activity.  This has continued unchanged until now.

A new report released by the Mortgage Bankers Association shows that mortgage originations dropped a staggering 35% in the first quarter of 2011.  The market is hovering on the edge of loan origination levels not seen since the year 2000, before the initial real estate bubble got started.  To give some perspective to the severity of this year's mortgage origination drop, the initial origination decrease at the start of the recession was a drop of about 31.5%.

The Mortgage Bankers Association estimates that mortgage le3nding will reach an 11 year low this year.  The reason?  NO more refinancing activity.  Refinances have kept the mortgage industry alive and kicking throughout the past year of the financial crisis, but after last autumn's massive mortgage rate decline, most homeowners have taken advantage of the opportunity to refinance.  Rates are low once again, but they'll have to drop much further before refinancing activity picks up again.

The only way out for the mortgage industry is through new home purchase loan originations.  These aren't likely to increase any time soon judging by the current home purchase slump.  The real estate sector has a long way to go to reach a sustained recovery.