Loan Demand at Stand Still. Are You Nervous About the Year Ahead?

by devteam March 17th, 2010 | Share

The Mortgage Bankers Association (MBA) today released its Weekly Mortgage Applications Survey for the week ending March 12, 2010.

The survey covers over 50 percent of all US residential mortgage loan applications taken by mortgage bankers, commercial banks, and thrifts.  The data gives economists a look into consumer demand for mortgage loans.  A rising trend of mortgage applications indicates an increase in home buying interest, a positive for the housing industry and economy as a whole.  Furthermore, in a low mortgage rate environment, such a trend implies consumers are seeking out lower monthly payments which can result in increased disposable income and therefore more money to spend on discretionary items or to pay down other debt.

From the release…

The Market Composite Index, a measure of mortgage loan application volume, decreased 1.9 percent on a seasonally adjusted basis from one week earlier.  On an unadjusted basis, the Index decreased 1.7 percent compared with the previous week. The four week moving average for the seasonally adjusted Market Index isrn up 0.8 percent.

The Refinance Index decreased 1.7 percent from the previous week. The four week moving average is up 0.8 percent. The refinance share of mortgage activity increased to 67.3 percent oftotal applications from 67.2 percent the previous week

The seasonally adjusted Purchase Index decreased 2.3 percent from one week earlier.  The unadjusted Purchase Index decreased 1.8 percent compared with the previous week and was 13.9 percent lower than the same week one year ago.  The four week moving average is up 1.1 percent for the seasonally adjusted Purchase Index.

The average contract interest rate for 30-year fixed-rate mortgages decreased to 4.91 percent from 5.01 percent, with points increasing to 1.30 from 0.82 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans.  This is the lowest 30-year fixed-rate observed in the survey since mid-December of 2009, yet the effective rate was unchanged from last week due to the significant increase in points.

The average contract interest rate for 15-year fixed-rate mortgages decreased to 4.24 percent from 4.32 percent, with points increasing to 1.47 from 0.88 (including the origination fee) for 80 percent LTV loans. This is the second time in the last three weeks that the contract 15-year fixed-rate has reached a record low in the survey.  However, the increase in points led to an increase in the effective rate from last week.

The average contract interest rate for one-year ARMs decreased to 6.75 percent from 6.80 percent, with points remaining unchanged at 0.30 (including the origination fee) for 80 percent LTV loans. The adjustable-rate mortgage (ARM) share of activity decreased to 4.6percent from 5.1 percent of total applications from the previous week.

Below is a chart comparing the refinance index to the average 30 year fixed mortgage rate during the most recent refinance wave.

When the Fed announced the MBS Purchase Program in late November 2008, mortgage rates fell fast and refinance loan apps skyrocketed. Then rates rose from 5.00% to 5.20% and refinance demand fell off just as fast as it rose. Rates soon reversed course and hit record lows in March/April 2009, the refinance index reacted with a sharp rebound higher. After moving sideways at all-time lows, mortgage rates then rose in late May/early June…this had the effect one might expect on refinance loan demand…it plummeted.

The point I am making here is there used to be a direct correlation between refinance loan demand and low mortgage rates. However, this correlation has faded. While rates recovered from the early summer spike, refinance applications never did. Since then…regardless of mortgage rates below 5.00%, both purchase and refinance loan demand have been stagnate.

My question: HOW NERVOUS ARE YOU ABOUT YOUR BUSINESS OVER THE NEXT YEAR? TWO YEARS? THREE YEARS? When do you think demand comes back? Nothing seems to be working at the moment….


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About the Author


Steven A Feinberg (@CPAsteve) of Appletree Business Services LLC, is a PASBA member accountant located in Londonderry, New Hampshire.

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