Mortgage lending this year likely will fall 21 percent to $1.5 trillion, Fannie Mae said. Refinancing will account for 58 percent of that, the mortgage financier said. In the current quarter, lending will fall to $451 billion from $574 billion at the end of the year.

Banks can continue to profit from borrowers in the hardest hit states, like Nevada, because they've largely been unable to refinance until now and need HARP, said Anish Lohokare, a mortgage-bond strategist in New York at BNP Paribas SA in New York.

“Banks can depend on demand from these borrowers because they have mortgages at 6 percent or more,” said Lohokare. “The lenders built all this capacity during last year's surge in refinancings, and now they can sustain their volume through HARP mortgages.”

HARP has been the government's most successful housing program, exceeding the 1 million loans modified under the Home Affordable Modification Program, or HAMP, and the 114,417 homes in Home Affordable Foreclosure Alternative, or HAFA, that have been short sales, where lenders agree to let homes sell for less than the mortgages against them.

“Clearly there was pent up demand from people who didn't have options” before the program was modified last year, said Meg Burns, senior associate director for housing and regulatory policy at the FHFA in Washington.

Eoin Treacy's view One of the objectives of quantitative easing has been to ensure that long-term interest rates are low enough to allow homeowners who took out Adjustable Rate Mortgages (ARM) during the property bubble to refinance at more attractive rates. Despite the fact that millions of people lost their homes through foreclosures, this policy helped to keep more people in their homes than might have otherwise been the case. Ultra low borrowing costs have also improved affordability and helped a base to form in property prices.

The Freddie Mac National 30-year Mortgage Rate compressed from 6.5% in 2008 to a low of 3.3% in November and remains close to 3.5% today. Fannie Mae 10-year yields spread over US 10-year Treasuries trade at -50 basis points illustrating the momentum fostered by the Fed's purchases of agency debt. Given the success of refinancing programs and renewed investor interest in the property market, it is questionable how much further these spreads can be expected to compress.

The S&P500 Homebuilders Index remains in a reasonably consistent medium-term uptrend and found support above the 200-day MA three weeks ago. A sustained move below the trend mean, currently near 500, would be required to question medium-term scope for additional upside.