Refinancing Plummets as Rates Rise; Purchases Fail to Pick up Slack

The rally in refinancing reported last week by the Mortgage Bankers Association (MBA) was short lived.  Rates rose again during the week ended September 6, sending refinancing applications into a tailspin.  MBA's Refinancing Index, a measure of refinancing volume dropped 20 percent and has now fallen 71 percent from its recent peak during the week of May 3.  The last time the Refinancing Index was lower was in June 2009.

Refinance Index vs 30 Yr Fixed

Refinancing represented 57 percent of mortgage applications compared to 61 percent the previous week and was its smallest share since April 2010.  The Home Affordable Refinance Program held on to the previous week's share of refinancing applications, 38 percent.  MBA's Market Composite Index, a measure of all application volume, was down 13.5 percent on a seasonally adjusted basis from the week ended August 30 and 23 percent on an unadjusted basis. 

The Purchasing Index was also off, decreasing 3 percent on a seasonally adjusted basis from the previous week.  The unadjusted index was down 14 percent week-over-week but was 7 percent higher than during the same week in 2012.  The week's results included an adjustment for the Labor Day holiday.

Purchase Index vs 30 Yr Fixed

The MBA survey shows that both contract and effective interest rates increased across the board.  The average contract interest rate for 30-year fixed-rate mortgages (FRM) with conforming loan balances ($417,000 or less) increased to 4.80 percent from 4.73 percent and points increased to 0.46 from 0.33.  The jumbo 30-year FRM (with balances over $417,000 had an average rate of 4.84 percent with 0.41 point compared to 4.71 percent with 0.25 point the previous week. 

The rate for 30-year FRM by the FHA increased 8 basis points to 4.56 percent with points increasing to 0.28 from 0.03 and the rate of 15-

The average contract interest rate for 15-year FRM was 3.83 percent with 0.42 point.  The previous week the average was 3.75 percent with 0.30 point.   

The adjustable-rate mortgage (ARM) share of activity was unchanged at 7 percent of total applications. The average contract interest rate for 5/1 ARMs increased to 3.59 percent from 3.49 percent with points increasing to 0.43 from 0.37

Rates quoted are for loans with an 80 percent loan-to-value ratio.  Points include the origination fee.

MBA's survey covers over 75 percent of all U.S. retail residential mortgage applications, and has been conducted weekly since 1990. Respondents include mortgage bankers, commercial banks and thrifts. Base period and value for all indexes is March 16, 1990=100.