Loan originations surprisingly slack

WASHINGTON, Aug. 11 (UPI) -- Low interest rates have failed to generate large numbers of loans comparing this recession to 2003, a national U.S. mortgage broker said.

The Federal Home Loan Mortgage Corp. said Wednesday that long-term interest rates dropped to 5.21 percent in 2003, a record low at the time. In response, nearly $4 trillion in loans were written, including $2.7 billion in refinanced mortgages.

In the current recession, with interest rates for 30-year and 15-year mortgages falling to new lows, loan originations are projected to be less than half of 2003 levels, Freddie Mac said.

The explanation is in at least three parts, Freddie Mac said.

First, about 25 percent of home purchases in 2010 have been "all-cash transactions," Freddie Mac said, an increase from less than 10 percent in recent years.

Secondly, home values have fallen, leaving many homeowners with so little equity refinancing for improved terms becomes harder.

Finally, "originations volumes are running at low levels because home sales volumes are low," Freddie Mac said.

Freddie Mac forecasts a sales volume for 2010 at less than 5 million new and existing homes, about a quarter as many as 2003.

The National Association of Realtors has said their affordability index is at levels unseen for 40 years, but home seekers are still hesitant. In the housing market, with falling prices, consumers are concerned with declining values of their investment and simply waiting for prices to improve even further.