Mortgage Applications Drop

Mortgage applications dropped sharply in the week ending April 24, ending what had been a series of steady increases over the past two months.

The Mortgage Bankers Association reported today that mortgage applications fell 18.1 percent in the week ending April 24 compared to the previous week on a seasonally adjusted basis. It ended an almost uninterrupted run of weekly increases dating back to the beginning of March, except for a brief downturn during the shortened Easter/Good Friday week.

The drop was primarily driven by a decrease in new applications for refinancing, which dropped 21.2 percent compared to the week before. Mortgage applications for home purchases dropped only 1.4 percent. Even so, overall application activity remains strong, up 62.7 percent over the same week a year earlier.

Timing may be a factor

"The drop in refinance applications are most likely a timing issue," said Dan Green, a loan officer with Mobius Mortgage and author of the popular The Mortgage Reports blog. He noted that many homeowners have already refinanced their homes or begun the refinancing process.

He also noted that more lenders are charging up-front application fees, reducing the number of "parallel submissions" where borrowers submit applications to multiple lenders to find the best deal. Another factor, he said, may be that the news media isn't reporting on low rates as much as they did a few weeks ago, so awareness is down.

"The number of times my phone rings in a day is directly proportional to the amount of times the media talks about 'low mortgage rates.' " he said.

Fluctuations are common

Last week's drop in mortgage applications may signal a return to normal weekly fluctuations after a two-month run-up in applications. Double-digit swings in mortgage applications are common in MBA data for January and February of this year.

The increase in mortgage and refinancing activity has been primarily driven by historically low interest rates. The average 30-year fixed rate mortgage fell below 5 percent the week of March 19 and has remained there since, according to weekly surveys by government-backed lender Freddie Mac.

Fed action drove run-up

Rates fell after the Federal Reserve announced on March 18 that it would take aggressive action to free up credit, purchasing $750 billion in mortgage-backed securities and $300 billion in U.S. Treasury securities. That action is generally credited with driving the wave of mortgage applications seen since then.

The recent increase in mortgage applications has been primarily driven by refinancing, which have been making up about 75-80 percent of all mortgage applications since the Fed's action was announced, according to the MBA. Mortgages for new home purchases have increased as well, spurred by both low rates and falling home prices.