Applications Show Refi Wear-Out?

Mortgage application volume for the week ending Dec. 26 remained “essentially unchanged” on a seasonally adjusted basis from the previous week, according to a weekly survey released Wednesday by the Mortgage Bankers Association (MBA). Without adjusting for the shortened Christmas week, the MBA’s index decreased 40 percent from the week before but showed a 155 percent growth from the same week in 2007. The MBA showed refinance activity decreased by a slight 0.4 percent from a week earlier, while the conventional purchase index rose 1.1 percent and the government purchase index (chiefly activity out of the Federal Housing Administration) rose 2.2 percent from the week before. The four-week moving average, seasonally adjusted, showed healthy signs of volume growth, with a 10.3 percent increase. And the refi share of total mortgage activity — 82.9 percent — showed only a slight decrease from the previous week’s 83.2 percent share, suggesting the popularity of mortgage refinance continues. Important to note is the MBA’s survey reports raw data on mortgage application volume — meaning they report on the total number of mortgage loan applications. A separate application survey conducted by Mortgage Maxx LLC studies the same data, but adjusts its figures to correct for multiple applications submitted by a single household. Counting multiple apps by the same household as a single participant, Mortgage Maxx’s Mortgage Application Index (or simply MAX) showed a 12 percent seasonally-adjusted rise in application volume for the week ending Dec. 26. Unadjusted for the holiday, the MAX would have shown a 30.2 percent decline for the shortened week, but overall an increase in the index shows an increase in the number of households active in the application process. “It looks like more households are entering the market, but those households submitted fewer apps,” said one of HW‘s sources, an industry analyst who asked not to be named. “I think what we’re seeing here is a bit of wear-out from the refi boom.” If such a cooling-off actually occurred, both the MBA’s and the MAX’s data supports it. Since the MAX adjusts for multiple applications and counts each household as a single participant, a 12 percent seasonally adjusted rise indicates an increase in the number of borrowers entering the market in the application stage. But the MBA’s report that the raw number of applications has remained unchanged would mean the total number of applications per household has decreased in the past week. More households submitted fewer mortgage loan applications. But why? HW’s source said the drop off in activity relevant to the number of participating households may be linked — not with a decrease in appetite for refinances — but with a decreased resolve after weeks of unsuccessful applications. When refi activity started exploding weeks ago, troubled borrowers jumped on the train, attempting to refinance into more affordable mortgages with lower interest rates, the source said. The same borrower that submitted 10 applications three weeks ago without any approvals by now might only submit one or two. The MAX publisher Paul Descloux echoed the analyst’s concerns, writing in the MAX that industry participants should, before drawing conclusions, consider “how much of the refi activity being generated is acting as a substitute for marginal loan modifications either by hopeful borrowers or institutions that ‘know the ropes.’” And even in such situations when borrowers achieve a refinanced or modified loan, a recent study has shown only marginal success of modifications in achieving a lowered monthly payment. Only 35 percent of modifications studied reduced monthly payments; 20 percent of modifications had no effect either way on the payment amount and nearly half of all modifications — 45 percent — resulted in an increased monthly payment, according to research reported mid-December by Valparaiso law professor Alan White. “The most worrisome new trend is the failure of modifications to remain solvent,” wrote the MAX’s Descloux. “With some sixty percent of these mods knocking on foreclosure within a year, this is truly looking like Einstein’s definition of insanity. Not Hope Now but hopeless as we keep waking up to a situation that in reality isn’t changing as planned.” Visit www.mbaa.org and www.mortgagemaxx.us for further details. Write to Diana Golobay at [email protected].