Mortgage Loan Application Activity Surges

Across the country, home equity and mortgage loan applications rose sharply.  The Mortgage Bankers Association released a report highlighting that thirty-year fixed-rate mortgage loans declined to 5.47% this week. These interest rates were much lower than the 5.99% reported last week.  Mortgage rates on fifteen-year fixed-rate mortgage loans fell to 5.13% from 5.78%, the report said. The rate on a one-year adjustable-rate mortgage declined to 6.61% from 6.87%.

Mortgage Refinancing

On an unadjusted basis, the index increased 51.4% from the previous week; it was down 21.9% from a year earlier, the report said. While the loan application statistics were high, “this is more a refinance story than a purchase story,” said Mike Larson, real estate and interest rate analyst at Weiss Research.  FHA home loan applications increased and that was a great sign for mortgage brokers, because they have lost a lot of business to loan modifications in recent months.

The interest rate report’s Refinance Index increased 203.3% to 3802.8 from the previous week, and the seasonally adjusted Purchase Index increased 37.4%.  “While purchasing a home is a big commitment, mortgage refinancing is often a no-brainer,” Larson said. “You may be less inclined to go buy a house in this weak economy. Home refinancing will go forward if the gains can hold.”  In the short-term, the Fed “did manage to get quite a bit of bang for their buck,” Larson said. “Most things they’ve done so far have improved some credit spreads slightly, but you didn’t see the effect on Main Street. Now, these are big numbers, the biggest we’ve ever seen.”

Today’s FHA mortgage rates are lower because lenders’ standards are tighter, Larson said, so many buyers applying may not have the home equity they need for approval. As a result, more loan applications “might end up in the circular file rather than the closing tables,” he said.  Still, Larson expected the Fed’s actions will result in more staying power and success, giving stressed homeowners a bit of breathing room.  “The Fed gave us an early Christmas gift,” he said.