Mortgage Rates Head Back Down

Credit remains cheap but hard to get, as mortgage rates declined again last week, approaching the record lows they have posted over the past two months.

Average rates on 30-year-fixed mortgages declined to 4.69 percent for the week ending May 15, according to the weekly survey by the Mortgage Bankers Association (MBA), down from 4.76 percent a week earlier. Rates had shown signs of nudging back up over the past six weeks after hitting an all-time low of 4.61 percent the week ending March 25 following the Federal Reserve's announcement of dramatic actions to lower the cost of credit.

Even so, many of those who would like to take advantage of the low interest rates are unable to do so, as banks have tightened lending requirements after losing billions in the collapse of the mortgage-backed securities market last fall. Many lenders are reportedly demanding credit scores of 720-740 or above and 20 percent down on new mortgages, making it tough for first-time homebuyers to take advantage of low interest rates and prices that otherwise might spark a rally in the housing market.

As a result, mortgage activity continues to be overwhelmingly dominated by refinancing existing loans, which made up nearly three-quarters of all mortgage loan applications last week. Applications to refinance a mortgage are up 42 percent compared to the same period last year, whereas mortgage applications to purchase a home are down more than 30 percent over the same period.

Short-term trends suggest that demand for mortgage refinancings is cooling off, though remaining strong, and demand for home purchase mortgages remains fairly stable, though weak. The MBA's Refinance Index for last week was 4794, down nearly a third from its peak of 6813 the week ending April 1, shortly after the Fed announcement. The Home Purchase Index stood at 254, having generally remained in the 250-260 range since mid-February.

On the week, mortgage refinance applications rose 4.5 percent in the MBA survey, whereas mortgage applications for home purchases were down by 4.4 percent. Overall mortgage applications rose 2.3 percent.