Mortgage Applications and Mortgage Refinance Surge on Mortgage Rate Declines

Mortgage Bankers Association (MBA) released their weekly report of mortgage applications revealing an enormous surge, 112 percent. Not a surprising reaction to a new Federal Reserve initiative that triggered mortgage rates to decline to a 3 year low on 30-year fixed-rate mortgages.

Obviously, homeowners are becoming frantic to lock in lower fixed-rate mortgages to preclude impending adjustments to rate and payment in interest-only and adjustable rate mortgages (ARMs). The combination of government refinance programs and toughening consumer economics are creating a surge in mortgage refinance activity.

Although these application numbers are not true closings or new mortgages they are a good indication of homeowners strong intent to get back into the mortgage market, at the right price.

This dramatic mortgage rate movement came as the Federal Reserve announced that they would buy Fannie Mae, Freddie Mac, and Ginnie Mae debt and mortgage-backed securities (MBS), the securities the underpin mortgages and their rates. Essentially a plan the creates massive government refinance assistance. However, that announcement may not be the last government assistance to push down mortgage rates.

US Treasury is now considering a plan to specifically target new home purchases. The intent is to create strong incentives for new home buyers to return to the market--a market full of housing inventory. This plan could push mortgage rates down to 4.5 percent, a full percentage point under current mortgage rates.

This low fixed-rate, combined with a housing market full of severely depressed housing prices could be an irresistible bargain to potential new home buyer. Perhaps, the combination needed to finally set a floor under housing prices and spark a recovery.