Refinance Demand Wanes. Purchase Apps in the Pipeline?

by devteam April 13th, 2011 | Share

The Mortgage Bankers Association (MBA) today released its Weekly Mortgage Applications Survey for the weekrnending April 8, 2011.</p

The MBA’s loan application survey covers over 50% of all U.S. residentialrnmortgage loan applications taken by mortgage bankers, commercial banks, andrnthrifts. The data gives economists a snapshot view of consumer demand forrnmortgage loans. In a falling mortgage rate environment, a trend of increasingrnrefinance applications implies consumers are seeking out lower monthlyrnpayments. If consumers are able to reduce their monthly mortgage payment andrnincrease disposable income through refinancing, it can be a positive for therneconomy as a whole (may boost consumer spending. Also allows debtors to payrndown personal liabilities faster). A trend of declining purchase applicationsrnimplies home buyer demand is shrinking.</p

Excerpts from the Release…</p

The Market Composite Index, a measure of mortgage loan application volume,rndecreased 6.7 percent on a seasonally adjusted basis from one weekrnearlier.  On an unadjusted basis, the Index decreased 6.3 percent comparedrnwith the previous week. </p

The Refinance Index decreased 7.7 percent to its lowest level since February 11, 2011.    The four week moving average is down 5.3rnpercent.  The refinance share of mortgage activity decreased to 60.3rnpercent of total applications from 61.2 percent the previous week. This is the lowest refinance share since May 7, 2010.  rn</p


The seasonally adjusted Purchase Index decreased 4.7 percent from one weekrnearlier. The unadjusted Purchase Index decreased 4.1 percent compared with thernprevious week and was 11.4 percent lower than the same week one year ago.  The four week moving average is up 0.7rnpercent. </p


The average contract interest rate for 30-year fixed-rate mortgagesrnincreased for the fourth consecutive week to 4.98 percent from 4.93 percent,rnwith points increasing to 0.93 from 0.69 (including the origination fee) for 80rnpercent loan-to-value (LTV) ratio loans. This is the highest average contractrnrate reported since February 18, 2011.  The effective rate also increasedrnfrom last week.<br /<br /The average contract interest rate for 15-year fixed-rate mortgages increasedrnto 4.17 percent from 4.14 percent, with points increasing to 1.22 from 1.09rn(including the origination fee) for 80 percent LTV loans. The effective raternalso increased from last week.</p


This is the explanation we offered two weeks ago on reduced loan demand. From Pool of Eligible Refinance Candidates Dried Up at Current Rates…</p

“Recently lower mortgage rates have done little to motivate potential refinance candidates.” said MND’s Managing Editor Adam Quinones. “This isn’t a big surprise as most qualified borrowers  simply don’t have an incentive to refinance because they already did last year when rates were near record lows.  Other than that, qualification issues continue to prevent many folks from lowering their monthly payment. We do however expect a modest increase in purchase activity heading into the spring buying season.” </p

Rates have moved higher since we shared that observation two weeks ago, and refinance demand has suffered as a result. No surprises there! We are however still hearing a considerable amount of chatter on the street regarding a seasonal increase in purchase demand.  The consensus from originators and pipeline hedgers is for the majority of those deals to close in May and June.  Are you seeing the same thing?

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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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