Borrowers Switch to Fixed-Rate, FHA Mortgages in Record Numbers

Mortgage Bankers Association's (MBA) most recent mortgage lending survey reveals borrowers shifting strongly to fixed rate mortgage products. The MBA attributes this preference to a decline in fixed mortgage fixed rates and tightening of lending standards.

Fixed rate mortgage loans now account for 78.5 percent of all mortgage originations. This is compared with 63.6 percent last year.

The other notable shift was a doubling of FHA and VA loans. Government assisted mortgage financing is not 11.8 percent of the market. The same period last year only have FHA mortgage originations at 5.7 percent. Most of this lift is attributed to the increasing of loan limits and some easing of lending standards for distressed borrowers.

Mortgage refinance continues to be the lion share of mortgage originations at 61.7 percent. New home purchase financing dropped 16.2 percent compared to the second half of 2007, while mortgage refinance originations were up 16.3 percent.

Early post-election mortgage rates headed downward as the equities took another plunge on new Presidential uncertainty. Sprinkling in additional economic bad news, ADP payrolls dumped 157,000 jobs and US mortgage applications dipped to 8 year lows.

The most likely path in the closing half of 2008 is that banks and consumers will continue to work out problem loans into fixed rate, FHA, and government loan modification programs. All the while riding the choppy waters of mortgage rates that turn on investor schizophrenic confidence.