Mortgage applications surge amid record-low rates

Mortgage loan applications surged 23% last week, according to the Mortgage Bankers Association, as record-low interest rates convinced many homeowners it was time to refinance into lower-cost loans.

Refinance Applications Surge 26.4% as Rates Set New Lows

Mortgage applications jumped 23.1
percent on a seasonally adjusted basis during the week ended January 13,
2012.  The increase in the Market
Composite Index, a measure of loan application volume maintained by the
Mortgage Bankers Association (MBA) reflected improvements in both the purchase
and refinance business following the traditionally slow Christmas and New Year
holiday period.  On an unadjusted basis
the index increased 38.1 percent.

The Refinance Index increased 26.4
percent
from the week ended January 6 to its highest point since August 8,
2011.  The seasonally adjusted Purchase
Index rose 10.3 percent, returning to pre-holiday levels.  The unadjusted Purchase Index was up 28.4
percent from the previous week and was 2.2 percent higher than during the same
week in 2011.

The four-week moving average for each
index also increased; the Composite Index increased by 5.99 percent, the
seasonally adjusted Purchase Index by 1.96 percent and the Refinance Index by
7.0 percent.

Refinancing took an 82.2 percent share
of all application activity, up from 80.8 percent the previous week and the
highest share since October 22, 2010.  Applications
for adjustable rate mortgages (ARMs) constituted represented a 5.6 percent
share of applications, up two basis points from the previous week.

Purchase Index vs 30 Yr Fixed

Click Here to View the Purchase Applications Chart

Refinance Index vs 30 Yr Fixed

Click Here to View the Refinance Applications Chart

 “Interest
rates
dropped last week due to continuing anxieties regarding the fragile
economic situation in Europe,” said Michael Fratantoni, MBA’s Vice
President of Research and Economics.  “With mortgage rates reaching
new lows, refinance volume jumped and MBA’s refinance index reached its highest
level in the last six months.  Purchase activity also increased as buyers
returned to the market after the holiday season.”

With
the exception of jumbo loans (with balances over $417,500) interest rates continued
their downward trend. Three of the rates, in fact, hit the lowest level in the
history of the MBA applications survey.  The
jumbo rate – for 30-year fixed-rate (FRM) loans – increased to 4.40 percent
from 4.34 percent with points decreasing to 0.37 from 0.47 point.  The effective rate also increased.

Thirty-year
FRM with conforming (under $417,500) balances hit a new low, decreasing to 4.06
percent with 0.48 point from 4.11 percent with 0.41 point. The effective rate
also decreased.

Rates
for FHA guaranteed 30-year FRM were
at 3.91 percent with 0.59 point, the lowest FHA
rate in the history of MBA’s application survey, down from 3.96 percent with 0.72 point.  The effective rate also decreased from the previous week.

The
third all-time low is the 3.33 percent rate with 0.39 point for the 15-year FRM. 
This was a drop from 3.40 percent with 0.37 point rate the previous week.  The effective rate also decreased.

The
average contract interest rate for 5/1
ARMs was unchanged at the record low 2.90 percent established the previous
week.  Points decreased to 0.45 from 0.49.   The
effective rate also decreased from last week.

All
rates quoted are for 80 percent loan-to-value originations and points include
the application fee.

 MBA’s covers
over 75 percent of all U.S. retail residential mortgage applications, and has
been conducted weekly since 1990.  Respondents include mortgage bankers,
commercial banks and thrifts.  Base period and value for all indexes is
March 16, 1990=100.

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Drop in Refinancing Curtails Application Volume

The Mortgage Composite Index, a measure of loan application
volume, was down 6.7 percent on a seasonally adjusted basis and 6.6 percent
unadjusted during the week ended June 29 compared to the week ended June
22.  The Mortgage Bankers Association
(MBA) released the Composite and other results of its weekly Mortgage
Applications Survey this morning.

The decrease in mortgage volume was attributed to a drop of
8 percent in the Refinance Index which was in turn driven by a drop in
applications for government-backed refinancing loans.  The share of refinancing applications was 78
percent of all applications, down one percentage point from the previous
week.  Applications for HARP refinancing
which is available only to current Freddie Mac and Fannie Mae borrowers have represented
a quarter of all refinancing applications for the last two weeks.

The seasonally adjusted Purchase Index was up one percent
from the previous week.  The unadjusted
Purchase Index rose only slightly from the previous week and was down 7 percent
from the same week in 2011.  

Purchase Index vs 30 Yr Fixed

Click Here to View the Purchase Applications Chart

Refinance Index vs 30 Yr Fixed

Click Here to View the Refinance Applications Chart

Both the contract interest rate and the effective rate for
all loan types decreased during the week and several rates hit new all time
lows
.   The average contract rate for 30-year fixed
rate mortgages
(FRM) with conforming balances ($417,500 or less) decreased to
3.86 percent with 0.41 point from 3.88 percent with 0.40 percent, the lowest
rate for those loans since MBA began tracking them. 

Jumbo 30-year FRM (balances over $417,500) dropped four
basis points to 4.08 percent with points up to 0.38 from 0.35.  This was the second lowest jumbo loan rate in
MBA’s history.   

FHA-backed 30-year FRM also set a new benchmark low with an
average rate of 3.69 percent with 0.46 point compared to 3.71 percent with 0.46
point.   

Fifteen-year FRMs set a new low at 3.20 percent with 0.47
point.  The rate the previous week was
3.24 percent with 0.44 point.

The average 5/1 adjustable rate mortgage (ARM) rate fell to 2.76
percent with 0.45 point, down from 2.81 percent with 0.41 point.  Applications for ARMs represented only 4
percent of all mortgage applications.

All rate quotes are for loans with an 80 percent
loan-to-value ratio and points include the application fee.

The MBA’s weekly survey covers
over 75 percent of all U.S. retail residential mortgage applications, and has
been conducted weekly since 1990.  Respondents include mortgage bankers,
commercial banks and thrifts.  Base period and value for all indexes is
March 16, 1990=100.

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Proposal to Seize Underwater Mortgages via Eminent Domain not Well Received

The Board of Supervisors in the California county of San Bernardino has,
perhaps unintentionally, picked a fight with some of the giants of the real
estate industry.  The Board unanimously
approved a plan two weeks ago that would use eminent domain to seize underwater
mortgages
and restructure them for homeowners unable to sell or refinance the properties.

The Homeowner Protection Program, in which San Bernardino would partner with
the cities of Ontario and Fontana within its borders, is only broadly sketched
out at present but it has already provoked a strong reaction from the Securities Industry and Financial Markets
Association (SIFMA).  SIFMA claims to
represent the interests of hundreds of securities firms, banks and asset
managers.  The trade association fired
off a letter to the Board on Friday, cosigned by more than a dozen of its
member organizations, protesting the proposed actions.  “Based on publicly available information on
the Agreement,” the letter said, “we are very concerned that the good
intentions of the Board of Supervisors will instead result in significant harm
to the residents the Agreement intends to help.”

The thrust of the letter is that such an action as proposed in San
Bernardino would significantly reduce access to credit for mortgage borrowers.  “If eminent domain were used to seize loans,
investors in these loans through mortgage-backed securities or their investment
portfolios would suffer immediate losses and likely be reluctant to provide
future funding to borrowers in these areas. 
It is essential to remember that investors in mortgage-backed securities
channel the retirement and other savings of everyday citizens through their
investment funds.  This program may cause
loans to be excluded from securitizations, and some portfolio lenders could
withdraw from these markets.  In other
words, this program could actually serve to further depress housing values in
the county by restricting the flow of credit to home buyers”

The Los Angeles Times quotes David
Wert, a spokesman for the county as saying the country would use eminent domain
to condemn mortgages on properties that are underwater, that is the owner owns
more on the mortgage than the value of the home, and would then renegotiate the
mortgages at a lower amount.  Only
homeowners who are current on their mortgage payments would be eligible for the
program.

The move is intended to help stimulate the region’s hard-hit economy by
freeing up people who have been stuck in their homes, Wert said. “Real estate
is the foundation of the inland economy, 
 [It] is based on the building and
selling of homes, and this is one way to stimulate that again.”

The program is still in its initial stages and additional details will be
hashed out in public the spokesman on said. 

Among those signing the SIFMA letter one were the Mortgage Bankers
Association, American Bankers Association, National Association of Realtors®,
The Financial Services Roundtable, American Securitization Forum, and the
Residential Servicing Coalition.

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