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WASHINGTON, DC-The Mortgage Bankers Association reports that both purchase and refi origination are dropping in the face of the recent credit crunch and by next year should be down by 18% from 2007. Furthermore, the association's economic forecast predicts that total originations will drop an additional 6% in 2009 from 2008 as the 5% increase in purchase originations partially offset a projected 18% decline in refi originations.

Much will depend on the severity of the credit shock, of which the markets have yet to fully see the impact, according to Doug Duncan, MBA chief economist and SVP of research and business development. "Among the other uncertainties we face are the impact of sharply higher energy costs, the impact on inflation from higher import prices due to the falling dollar, and the impact of uncertainty over the tax policies coming out of Washington," he says. "The underlying fundamentals of the economy, however, should be strong enough to get us past this period so that economic growth should return to normal levels by the second half of 2008."

Duncan adds that "if the funds rate is reduced another 25 basis points at the October policy meeting, that may be the last move needed to keep the economy on a moderate growth track." Growth, though, he explains, seems likely to remain at or somewhat below the economy's long-term growth potential, which means the Fed should not have to reverse course and raise interest rates next year.