Mortgage Rates Down, But Mortgage Loan Applications Decline

The US government continues to be successful in driving down mortgage rates, with the 30-year fixed-rate mortgage averaging below 5.5 percent. However, surprisingly mortgage applications are moving in the wrong direction--down over 7 percent from last week.

The Mortgage Bankers Association's (MBA) weekly mortgage application index dropped 7.1 percent. Within that index mortgage refinance applications dropped 0.9 percent, while mortgage purchase applications plunges 17 percent.

Declining economic conditions seem to be the issue. Households are being effected by rising unemployment and banks continue to tighten credit standards. This is forcing new home purchasers to stay on the sidelines despite dramatic declines in housing prices.

This weeks retraction in mortgage applications is in sharp contrast to the 112 percent surge in applications in late November. Following a commitment by the Federal Reserve to purchase $600 billion inGSE (Fannie Mae, Freddie Mac, and Federal Home Loan Bank) debt mortgage rates descended overnight from 6.5 percent to 5.5 percent for a 30-year fixed rate mortgage--bringing mortgage rates to the lowest levels since March 2004.

The MBA survey does reflect troubled homeowners attempting to work out of risky adjustable rate mortgages with these new low rates. Mortgage refinance applications jumped from 69 percent of applications to 79 percent this week.

Even more new home purchase government mortgage assistance may be on the way. The US Treasury has been considering pushing down new home mortgage rates to 4.5 percent. Meanwhile, JamesLockhart the federal regulator that oversees Fannie Mae and Freddie Mac say these rate may go as low as 4 percent.

Unfortunately, affordable mortgages are not the only problem. Americans are now facing a simple lack of income and damaged from mounting job loss. An environment that is leading many in Congress to advocate putting job stimulus into the focus of ongoing government economic stimulus packages.