Mortgage Applications Up as Rates Back Down

U.S. mortgage applications increased last week, ending four consecutive weeks of declines, according to data released this morning by the Mortgage Bankers Association (MBA).

Mortgage applications had been steadily declining over the past month as interest rates on 30-year fixed mortgages rose from historic lows. The current survey showed average rates backing off a bit in the past two weeks, down to 5.44 percent last week, compared to 5.50 percent and 5.57 percent in the last two surveys.

Rates may respond to Fed annoucement today

The news comes as markets await this afternoon's announcement by the Federal Reserve of the next steps it will take to address credit markets. Early reports are that the Fed is expected to embrace moderate efforts to keep interest rates low, which could translate to further easing of mortgage rates and renewed interest in mortgage refinancing in the weeks ahead.

The MBA reported that total mortgage applications for the week ending June 19 rose 6.6 percent on a seasonally adjusted basis, reversing a decline that had total applications at their lowest levels since last November. Applications for both mortgage refinancing and home purchases were up, by 5.9 percent and 7.3 percent, respectively.

Declining interest in mortgage refinacing

Interest in mortgage refinancing has dried up in recent weeks as 30-year rates rose from the sub-5 percent level where they had been throughout March and April. However, mortgage applications for home purchases have continued to show modest, but fairly consistent, increases as homeowners continue to seek bargains in the foreclosure-depressed real estate market.

Earlier this week, the MBA sharply revised its prediction for total mortgage orginations this year, scaling back its forecast to $2.03 trillion in total mortages in 2009. The figure is a reduction of $700 billion from its previous forecast, due primarily to the recent rise in interest rates and declining interest in refinancing.

Included in the total, the MBA scaled back its prediction of home purchase mortgages to $737 billion,m down from $821 billion predicted in March. The MBA attributed this to a continued slide in real estate values as foreclosures flood the market, even though it predicted that total unit sales would be higher than expected.

Interest stirs in ARMs

One other thing that has changed over the past month with the rise of interest rates is the return of the adjustable rate mortgages. ARMs fell to nearly zero while 30-year rates were at their record lows, lows that sometimes were even below that of the listed ARMs. Since then, ARMs have made a modest comeback, but still make up only a minor part of the market, accounting for only 4.1 percent of total mortgage applications the past week.

The MBA reported that the average rate on 1-year ARMs was 6.54 percent for the week ending June 19, while the average 15-year fixed rate was 4.93 percent. All rates are based on loans with 80 percent loan-to-value ratios.