Austin Kilgore | 01.20.09 www.dsnews.com

The new year will bring increased mortgage refinancing activity, but it will be tempered by lower housing costs and tighter lending standards, according to a research report issued last week by Deutsche Bank.

The report said the real estate financial sector can also expect to see increased mortgage prepayment, lower funding costs, and higher unemployment, resulting in increased residential mortgage delinquencies.

The report said lower mortgage rates, created by the Federal Reserve's purchase of $500 billion in mortgage-backed securities guaranteed by Fannie Mae, Freddie Mac, and Ginnie Mae, and $100 billion in mortgages owned by the government sponsored entities, will fuel the increase in refinancing volume this year.

According to the report, “While we expect low mortgage rates to result in faster prepayment rates in 2009, we do not anticipate a giant refinance wave similar to 2003. The lack of alternative loan products, the impossibility of widespread cash-out refinancing, and decline in home prices are likely to prevent refinance rates from rising to 2003 levels.”

Deutsche expects conditional prepayment rates (CPR) to increase to 25 to 30 percent from third quarter 2008 levels of 10 to 20 percent. In 2003, the report said, CPR were 40 to 50 percent.

The German bank also expects mortgage interest rates to remain low for the year, and that the federal government will continue to take action to keep rates low.

“The Fed views low mortgage rates as key to supporting the housing market, and we would expect Fed and other public policy actions to maintain a low mortgage rate environment during 2009,” it said.