Mortgage Refinances Decline Despite Low Rates

By:: Kara Johnson | June 09, 2010

Applications to refinance existing mortgages took a big drop last week, even as long-term mortgage rates declined slightly, according to figures released today by the Mortgage Bankers Association (MBA).

The seasonally adjusted MBA Refinance Index dropped 14.3 percent from the previous week, part of a 12.2 percent decline in overall mortgage applications. Purchase applications were down 5.1 percent, the fifth straight week of declines since the April 30 deadline for the home buyer tax credit.

"Purchase and refinance applications dropped this week, even after an adjustment for the Memorial Day holiday,” said Michael Fratantoni, MBA's Vice President of Research and Economics. “Purchase applications are now 35 percent below their level of four weeks ago, as homebuyers have not yet returned to the market following the expiration of the homebuyer tax credit at the end of April."

The average interest rate on 30-year fixed rate loans fell to 4.81 percent with 1.02 points paid, down from 4.83 percent and 1.05 points the week before for loans with an 80 percent loan to value ratio. The average rate on 15-year fixed rate loans crept up to 4.26 percent from 4.24 percent the week before, but the effective rate declined due to a decrease in the points to 0.95 from 1.11 percent the week before.

The decline in refinance applications came after four weeks of increases, even though rates remain at historically low levels. Frantoni suggested that many homeowners in a position to refinance have already done so, while others may be unable to refinance due to lack of equity, damaged credit or uncertain employment situations.

Mortgage refinances continued to make up nearly three-quarters of all mortgage applications, with a total share of 72.2 percent, down from 73.8 the week before. Adjustable-rate mortgages made up 5.1 percent of all applications, down from 5.2 percent the week before.

The MBA survey covers the week ending Friday, June 4.

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