Mortgage Applications Continue to Increase, Might Be False Hope

Mortgage applications move higher again in response to declining mortgage rates. Could this be false hope in recovering a steadily declining housing market?

The Mortgage Bankers' Association (MBA) released their weekly mortgage application index for the week ending March 6, 2009, showing a sharp increase. Climbing 11 percent from 649.7 to 723.4 the MBA index for purchase or refinance application showed strong gains on lower mortgage rates.

Mortgage refinance applications showed the strongest gain at 13 percent with purchase also up a significant 7.1 percent. However, in a tight credit market these numbers do not necessarily act as an indicator of home sales or refinanced mortgages. Consequently, reading these number may lead you to a false conclusion.

In today's market, these numbers simply reflect the demand for borrowers to solve pending problems--ones that may lead to more economic trouble.

Mortgage brokers we surveyed say borrowers are still trying to avoid ballooning option ARMs, resetting adjustable-rate mortgages, and mortgage payments that can't support with job losses.

Unfortunately, the unwritten story in the mortgage application numbers are that few of these applications are getting approved. Not only are banks tightening their credit standards, but sharply declining home values continue to ravage homeowners home equity.

Loan modifications are becoming the only option for many of these mortgage applications. However, implementation of new "good payer" loan modifications are being slowed byservicer capacity and mortgage bond investor challenges.

This could put a few more mortgage bubbles on the horizon to pop--Option ARMs balloon payments and more adjustable-rate payment resets. Sending the housing market into more record breaking territory on foreclosures, depressing property values, and continued slowing in home sales.