Refi Requests Drive Strong Application Week

Raw mortgage application activity ticked up a seasonally-adjusted 3 percent for the week ending March 27, according to a weekly survey released Wednesday by the Mortgage Bankers Association. The four-week moving average rose 16 percent, indicating an overall seasonal strength in application activity. The index measuring refinance applications rose 3.7 percent, with refi interest rising to 79.1 percent of total applications, from 78.5 percent last week. The four-week moving average for refinance applications is up 20.3 percent, according to the MBA’s data. The purchase application index inched upward 0.1 percent for the week, with conventional purchase applications rising 1 percent and government purchase applications — for Federal Housing Administration-insured loans, for example — fell 1.4 percent. The MBA, which also monitors mortgage interest rates, found that rates across the board fell in the same week, indicating that rising interest in refinance may be tied to continued lower rates. The average 30-year fixed mortgage rate fell slightly to 4.61 percent, while the average 15-year fixed rate fell to 4.45 percent from 4.48 percent. The average rate for one-year adjustable-rate mortgages fell to 6.2 percent from 6.22 percent a week earlier. A separate survey conducted by Mortgage Maxx LLC found that application activity adjusted for multiple applications submitted by a single household jumped 13.2 percent for the same week. The Mortgage Application Index — or MAX — showed “a pick-up in mortgage application activity but not a stampede” for the week ending March 27, according to publisher Paul Descloux. “Though fully expecting further increases in the MAX in the coming weeks as seasonal home sales move higher and rates remain headline friendly, the desired and measurable returns on the Fed’s investment may not meet,” he wrote in his commentary on the index. The Federal Open Market Committee in mid-March announced it would fund an additional $1.15 trillion to credit-unlocking efforts by purchasing up to an additional $750 billion of agency mortgage-backed securities and by increasing its purchases of agency debt this year by up to $100 billion to a total of up to $200 billion. The announcement effectively pushed rates slightly lower and then last week, raw apps jumped 32.2 percent. Despite the raging borrower interest in refi, it remains unclear how many of these applications will eventually translate into closed loans. In his commentary on the MAX, Descloux warned against undue optimism in the refi boom. “Of note also should be the real versus nominal cost for refinancing,” he wrote. “With fees moving higher and the imputed increase in taxable interest proposed, the value of refinancing dulls at the margin.” Data released in late March by Lender Processing Services Inc. (LPS) appeared to support Descloux’s claim that “refis are not a tool for underwater homeowners” with high LTVs, and especially those seriously delinquent on their mortgages. LPS’ data showed prepayments — the effect of refinances in mortgages in securities, where they appear as paid-in-full although they have simply moved from one loan pool to another — among borrowers current on their mortgage payments has spiked considerably from December to February. The rate of prepayments for these borrowers now sits at a high not seen in the reported data from January 2007. The prepayment rates among delinquent borrowers, however, has not changed much in the last few months and are lingering far below the rate for current borrowers, according to LPS’ findings. These data suggest delinquent borrowers are not able to refinance as easily as current borrowers. Additionally, LPS found that refinance activity in the last several months has been “concentrated primarily in the highest FICO category” of 720 plus. “Prepayments have continued to increase significantly, but refinance liquidity is concentrated most in borrowers who need help least,” LPS said. Visit www.mbaa.org and www.mortgagemaxx.us for further details. Write to Diana Golobay at [email protected]. Disclosure: The author held no relevant investment positions when this story was published. Indirect holdings may exist via mutual fund investments. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.