WASHINGTON - For credit unions that were overwhelmed with mortgage originations last year, there's good news from the Mortgage Bankers Association: mortgage activity may slow slightly this year. The not-so-good news is it will still be near record levels. In releasing its long-term economic forecast, the Mortgage Bankers Association projected residential mortgage production in 2005 will reach $2.542 trillion. Yes, that will be down modestly from the second biggest year on record in 2004. But after all, that would still mean a virtual tie with 2002 - the third-biggest year ever. The MBA expects purchase loans to total $1.559 trillion in 2005, decline slightly to $1.517 trillion in 2006, then rise slightly to $1.556 trillion in 2007. Those are still impressive figures that would keep mortgage departments at credit unions and elsewhere busy. But why the slight declines over the next three years? Doug Duncan, MBA chief economist and senior vice president for research and business development, posed questions of his own. "With the historically low interest rates of almost the last three years, how many people who would have been future buyers in a higher interest rate environment got moved forward into 2003 and 2004? How much of an interest rate rise would it take to create a pause in sales activity?" That makes the projections somewhat cautious ones, Duncan said. However, it still leaves them at near record levels. "It's sort of, what have you done for me lately," he declared. Duncan suggested an overall solid economy lies behind his positive projections. Duncan expects gross domestic product to grow at about 3.5% annually through 2007. "We see the job market getting stronger, even with continued strong - though slightly slower - gains in productivity," he said. "There will likely be a slight uptick in the inflation rate in 2005, which will support the Fed's continued march upward with the Fed Funds target as the Fed maintains focus on its number one objective of keeping inflation at bay." Duncan sees long-term rates increasing from current levels by 50 to 65 basis points by the end of 2005 and another 25 to 35 basis points during 2007, finally reaching about 7% for a 30-year, fixed-rate mortgage by the end of 2007. If his outlook proves correct, credit unions should see at least some members less worried about their jobs. He forecasts unemployment to drop from the current 5.4% to 5.2% by the middle of 2007. What's more, fewer members should be pushed out of the market by rising prices. The MBA expects home-price growth will be less rapid during the coming three years, with existing-home prices increasing 4.7% during 2005 and new-home prices up 3.7%. Price increases in 2006 and 2007 are expected to run 3 to 4%. Summarizing his forecast, Dun indicated 2005 will see a strong economy, continued job growth, and continued strength in the real estate market. The organization also released its 2005 lobbying priorities, more officially its Advocacy Agenda. The list includes: * Reauthorization and extension of the Terrorism Risk Insurance Act of 2002. * A national standard to combat abusive lending practices. * Tax reform including preserving the mortgage interest deduction and making mortgage insurance premiums tax deductible for most homeowners. * Modernization and strengthening of FHA. One specific step the MBA would like to see FHA take would be a pilot zero down payment program. Legislation authorizing such a venture failed to pass Congress last year. As for predatory lending, Kurt Pfotenhauer, MBA senior vice president of government affairs, noted legislation already introduced has bi-partisan backing. -

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