WASHINGTON -(Dow Jones)- U.S. mortgage lending is projected to sink 36% this year to the lowest level since 1997, a trade group said Wednesday.

The Mortgage Bankers Association forecast new loans will fall to $966 billion in 2011 from $1.5 trillion this year.

MBA said the drop is mostly due to high unemployment and borrowers' diminished credit coming out of the recession, but that concerns about loan buy-backs are also having an effect.

MBA Chief Economist Jay Brinkmann said lenders are not willing to take on the risk that they're going to have to re-purchase loans in the future.

Insurers and private buyers of bank mortgages have been pushing banks to repurchase some loans that they allege don't meet underwriting standards. Earlier this month, Bank of America (BAC) agreed to buy back almost $3 billion of bad mortgages, but there are still billions of dollars in buy-back requests for Bank of America alone.

MBA predicted that existing-home sales would fall 0.9% in 2011 to 4.8 million and new home sales would rise 10% to 351,000 homes.

Copyright © 2011 Dow Jones Newswires