MBA Sees up to $1.5 Billion of ARM Resets Next Year.(Mortgage Bankers Association)(adjustable-rate mortgages)(Conference news)

CHICAGO -- At the group's annual convention here, Mortgage Bankers Association chief economist Douglas Duncan said that the best estimates find between $1.1 trillion and $1.5 trillion of adjustable-rate mortgages will reset in 2007. There are three possibilities for those loans: refinancing, going into default or resetting. He thinks just between $600 billion and $700 billion will refinance, which is already accounted for in MBA's projection. As for defaulting, Mr. Duncan said many of those ARMs have already reset at least once and the biggest threat of default is on the first reset. The remaining $500 billion to $800 billion of ARMs will just reset, he said. Overall, refinancings will fall from $1.07 trillion in 2006 to $807 billion this year.

The MBA is predicting total volume for 2007 of $2.12 trillion, down 14% from a projected $2.46 trillion this year.

The 2006 volume will be down 19% from the $3.03 trillion originated in 2005.

In the macroeconomic forecast, former MBA chief economist Lyle E. Gramley said the biggest drags on economic growth right now are housing and automobile production.

At the same time the two men were making their presentation, the Federal Open Market Committee was conducting the first day of a two-day meeting. The Fed is expected to do nothing, he said.

In fact, it is likely the Fed could keep rates at the same level through 2008, even though there are members of the committee who would like to increase the fed funds rate.

But as for the possibility the Fed will lower rates, Mr. Gramley declared that is not even on the radar screen.