The Mortgage Bankers Association (MBA) lowered the bar on its expectations of the mortgage origination industry Monday, narrowing its anticipated '09 origination volume by $700bn to $2.03trn.

Contraction of purchase originations accounted for only $84bn of the reduction, while low refinance originations drove the rest of the reduction. The MBA now expects $737bn in purchase originations and $1.3trn in refi originations. The lower refi projection also results from low volumes generated within the Home Affordable Refinance Program (HARP) at Fannie Mae (FNM: 0.00 N/A) and Freddie Mac (FRE: 0.00 N/A).

The revisions come after the MBA boosted its forecast by $800bn in March on the heels of the HARP implementation and in the midst of falling interest rates. But when rates began to edge up, the refinance wave began to ebb.

“While generally accepted estimates were that around 1.5m to 2m borrowers might avail themselves of this program, with many more potentially eligible, to date only about 13,000 loans have been completed according to press reports," MBA's chief economist Jay Brinkman said in a statement.

"While the number of loans completed under this program is likely to increase," he added, "it is difficult to craft a scenario under which origination volumes would come anywhere close to reaching the numbers originally envisioned for the program, particularly under our higher rate environment. "

Currently, the HARP allows for borrowers with mortgages up to 105% loan-to-value (LTV) — or 5% more than the current market value of the home — to qualify for refinance. But critics for months have said the LTV limit will not reach the borrowers who need it most — those who purchased more than three years ago, with little money down and when house prices hit a peak.

Federal Housing Finance Agency director James Lockhart, in a press conference last week, acknowledged the administration is considering expanding the LTV range to cover borrowers with more than 105% LTV, although he would give no exact figure for the new LTV target. A move toward 125% maximum LTV might increase participation in the program, although investors are still skeptic on how great an effect it would have.

Write to Diana Golobay.

Disclosure: The author held no relevant investment positions when this story was published. Indirect holdings may exist via mutual fund investments.

Sales of existing homes, including single-family, town homes, condos and co-ops, rose 2.4% in May to a seasonally adjusted annual rate of 4.77m units as the revised Home Valuation Code of Conduct took effect, altering the way homes are valuated.

The sales rate is still 3.6% below the year-ago pace of 4.95m seen in May 2008, according to a monthly report released today by the National Association of Realtors (NAR).

"Historically low mortgage interest rates clearly drew buyers into the market, and housing remains very affordable even with a recent uptick in rates," says Lawrence Yun, NAR's chief economist, in a statement today. "However, the increase in sales is less than expected because poor appraisals are stalling transactions."

May 1 marked the effective date of a new Home Valuation Code of Conduct, which calls for the use of appraisal management companies (AMCs) to handle property valuations and mitigate the risk of fraud and bias in the appraisal process.

One of HousingWire's sources, however — an industry veteran with almost three decades of experience in the appraisal space — says the use of AMCs, although achieving the intended distance between lenders and the appraisal process, has also wedged an unacceptable distance between the appraisal process and realistic valuations based on local performance.

"We hear about appraisers from these AMCs driving from two and a half hours away to see a property," says the source. "They have no knowledge of the area or the history of prices in the community."

NAR's Yun notes other instances where appraisers compare traditional homes with distressed and discounted sales and other faulty valuations that either interfere with price recovery or make obtaining a mortgage on a specific property impossible.

"There is danger of a delayed housing market recovery and a further rise in foreclosures if the appraisal problems are not quickly corrected," he says.

NAR president Charles McMillan, a broker with Dallas-Fort Worth area Coldwell Banker Residential Brokerage, called for "realistic" appraisals conducted by specialists familiar with the local market. He also called for the expansion of the first-time home buyer tax credit to all buyers of primary homes, regardless of income, into 2010. Such an expansion of the tax credit, combined with reasonable appraisals, should make obtaining a mortgage and owning a home easier, in turn working even further through housing inventory.

NAR found that housing inventory as of the end of May fell 3.5% to 3.8m existing homes, representing a 9.6-month supply at the current sales pace. The median existing-home price for all housing types came in at $173,000 in May, 16.8% below the median seen in the same time last year. Distressed — or foreclosed — sales put downward pressure on the median, although they accounted for 33% of all sales in May, down from 45% of all sales in April.

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Despite federal intervention in the housing market and credit freeze that might not have had the desired effect thus far, certain signs of stabilization appear to be thawing, according to a new housing report.

"While it is too soon to tell whether housing markets will stabilize in 2009, conditions that could support a recovery are taking shape," like increased housing affordability and more balanced housing supply and demand, according to a housing report by Harvard University's Joint Center for Housing Studies.

The federal government's initiatives to redevelop public housing, to provide an $8,000 first-time home buyer tax credit and a federal refinance and modification program are "less generous" than the stimulus sen in 1974, despite its intentions to prevent foreclosures, the report notes.

The stimulus assistance hardly touches the billions of dollars in new mortgage debt taken out in the last few years as homeowners facing job loss or financial hardship struggled to stay current on consumer debt like credit cards.

The Harvard report notes an estimate by the Federal Reserve that consumers used $874bn in home equity cashed out between 2001 and 2007 to pay down non-mortgage debt, consolidating consumer debt onto their mortgages. The report also noted mortgage debt cannot be discharged through personal bankruptcy, although instances of personal bankruptcy practically doubled from 600,000 in 1006 to 1.1m in 2008.

Saddled with mortgages worth significantly more than their homes and facing rising unemployment levels, homeowners have a trying road ahead, according to the report's conclusion. And the economy faces other pressures ahead as home-owning demographic groups rise in years to come. The Harvard report poses several projections of population growth, with net immigration rising from 1.1m as seen in '05 to 1.5m in 2020 in the highest estimate range. The report's lower series of projections sees half that pace.

Immigrants and US minorities account for a broad sector of housing demand. Minorities will lead 73% of household growth in coming years, the report projects. Additionally household growth from 2010 to 2020 could either total as much as 14.8m or remain closer to 12.5m (close to the rate seen in '95 to '05), according to the report. All of the additional housing demand might further alleviate the strain on the housing market, the report notes, or the portion of low-income minorities and immigrants could add to the affordability crisis going forward.

Write to Diana Golobay.