Loan Demand Gets Boost from Recently Refinanced Borrowers

By: • Wed, Aug 25 2010, 2:43 PM

The Mortgage Bankers Association (MBA) today released its Weekly Mortgage Applications Survey for the week ending August 20, 2010.

The MBA's loan application survey covers over 50% of all U.S. residential mortgage loan applications taken by retail mortgage bankers, commercial banks, and thrifts. The data gives economists a snapshot view of consumer demand for mortgage loans. In a low mortgage rate environment, a trend of increasing refinance applications implies consumers are seeking out a lower monthly payment. If consumers are able to reduce their monthly mortgage payment and increase disposable income through refinancing, it can be a positive for the economy as a whole (creates more consumer spending or allows debtors to pay down personal liabilities like credit cards). A falling trend of purchase applications indicates a decline in home buying demand, a negative for the housing industry and the economy as a whole.

The Market Composite Index, a measure of mortgage loan application volume, increased 4.9 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index increased 4.5 percent compared with the previous week. The four week moving average for the seasonally adjusted Market Index is up 5.0 percent.

The Refinance Index increased 5.7 percent from the previous week and is at its highest level since May 1, 2009. The four week moving average is up 6.2 percent for the Refinance Index. The refinance share of mortgage activity increased to 82.4 percent of total applications from 81.4 percent the previous week, which is the highest share observed since January 2009.

The seasonally adjusted Purchase Index increased 0.6 percent from one week earlier. The unadjusted Purchase Index decreased 1.1 percent compared with the previous week and was 38.8 percent lower than the same week one year ago. The four week moving average is down 0.3 percent for the seasonally adjusted Purchase Index.

The average contract interest rate for 30-year fixed-rate mortgages decreased to 4.55 percent from 4.60 percent, with points decreasing to 0.89 from .92 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans. This was the lowest 30-year contract rate ever recorded in the survey. The effective rate also decreased from last week.

The average contract interest rate for 15-year fixed-rate mortgages decreased to 3.91 percent from 3.99 percent, with points increasing to 1.64 from 1.05 (including the origination fee) for 80 percent LTV loans. This was the lowest 15-year contract rate ever recorded in the survey. However due to the increase in points, the effective rate increased from last week.

The average contract interest rate for one-year ARMs decreased to 6.84 percent from 6.90 percent, with points increasing to 0.22 from 0.21 (including the origination fee) for 80 percent LTV loans. The adjustable-rate mortgage (ARM) share of activity increased to 5.8 percent from 5.7 percent of total applications from the previous week.

Michael Fratantoni, MBA's Vice President of Research and Economics, sums up the weekly data:

"The volume of refi applications last week was up 26% over their level four weeks ago. Mortgage rates dropped to their lowest level in the survey, going back to 1990, as incoming data continue to indicate that economic growth has slowed...We are at a new 15 month high for the Refinance index. With rates this low, many borrowers who refinanced in the past two years may well have an incentive to refinance again, and this is likely increasing refi application activity."

I agree. We actually discussed this last week...

From: Lenders Cushion Loan Pricing After Spike in Refinance Demand. Who is Refinancing?

How many of these new refinance applications are borrowers who have refinanced within the last 20 months? Are you getting more refinance inquiries from borrowers who are currently paying interest only?

If you're not mining your client database you're missing out on business.