Mortgage Applications Leap Upward, Even as Mortgage Rates Climb

Mortgage applications increase for the second straight month. Despite a jump in mortgage interest rates, the Mortgage Bankers Association reports the biggest single month surge in refinance applications in five years.

Borrowing costs on 30-year fixed rate mortgages have jumped far above the sub-6.0 percent of a week ago. At a current surveyed average of 6.47 percent, this reflects an increase of 0.48 percent.

Concerns over a prolonged economic downturn and tightening credit standards are compelling homeowners to work themselves out of risky adjustable mortgages and ballooning option ARM mortgages, even at these higher interest rates.

The 0.48 percent rise is the one of the largest single week rises in mortgage rates since 2003, when rates jumped 0.50 percent.

Current market volatility is likely to continue putting erratic and unpredictable pressures on mortgage rates. Historic benchmarks and direct mortgage rate influencers like treasuries and the MBS market are making it difficult to forecast the true trend line for mortgage rates.

Early in the week, treasuries made a steep uptick as fearful investors fled the equity markets for the safety of these government bonds. However, mortgage rates did not get the inverse downward pressure that is normally associated with this benchmark. This unexpected effect resulted from the MBS market, a direct effector of mortgage rates, heading downward. This downward pressure, resulting from continued fear of mortgage assets and tightening credit expectations sent mortgage rates in a dramatically different direction.

Homeowners are struggling with the reality of necessary refinancing even if mortgage rates have lost their opportunity.

Questions remain if this forced refinancing at higher rates will continue to spiral borrowers into defaulting on payments. Regardless, homeowners see the writing on the wall--refinance or feel an even bigger pinch later.