by Calculated Risk on 10/24/2006 07:02:00 PM

From Reuters: US mortgage creation to slide through 2007-MBA. From MBA chief economist Doug Duncan:

U.S. home loan generation will slide 19 percent this year to $2.46 trillion, the fifth-highest total on record, then drop another 14 percent in 2007 before stabilizing the following year...

Mortgage creation should drop to $2.12 trillion in 2007 and hold at that level in 2008 ...

Duncan sees the economy rebounding in '07 and flat home prices in nominal terms:

The economy "rebounds from a weak second half of 2006 level, which is weak primarily due to the slowdown in housing and auto production," Duncan told Reuters. "The housing market will go through its trough in early 2007 and by the second half of 2007 will stabilize, and then will have returned to its longer-term trend of modest growth. Prices will likely be close to flat, if not flat in nominal terms."

And on ARM resets and delinquencies:

The share of ARMS -- which have been a huge driver of loan origination, particularly as borrowers sought to get into costlier or bigger homes -- has been sliding and should continue to decline, the MBA said.

ARM share should drop to 19 percent of total loans by the end of 2008 from about 30 percent at the beginning of this year.

Some $1.1 trillion to $1.5 trillion of ARMs will be eligible to reset next year, the MBA estimated. How those loans play out could have a significant impact on the housing and mortgage debt markets.
...
Delinquencies and foreclosures will increase along with homeowner mortgage payments. The MBA is not forecasting levels but predicts they will be "manageable."

"Delinquencies are likely to rise modestly but they will primarily be in the sub-prime adjustable sector of the market and in those markets where house prices actually decline so that people don't have equity to solve their problems," Duncan said.