Refis Help to Boost Mortgage Application Volume

An increase in refinancing carried overall applications onto the plus side of the ledger during the week ended October 30. The Mortgage Bankers Association (MBA) said its Mortgage Applications Survey found a slight decline in purchase applications but a significant gain in refinancing compared to the previous week. This resulted in an increase of MBA's Market Composite Index, a measure of mortgage loan application volume, of 3.8 percent on a seasonally adjusted basis from one week earlier and 3.0 percent on an unadjusted basis.

The Refinance Index rose 6 percent from the previous week and was 88 percent higher than the same week one year ago. The refinance share of mortgage activity increased to 68.7 percent of total applications from 66.7 percent during the week ended October 23. 

The seasonally adjusted Purchase Index was 1 percent lower than the previous week and dropped by 3 percent unadjusted. The index was 25 percent higher than the same week in 2019. 

"Mortgage rates continue to hover at record lows this fall. The 30-year fixed mortgage rate remained essentially unchanged at 3.01 percent last week, but rates for 15-year fixed-rate loans, FHA loans and jumbo loans all fell to new MBA survey lows," said Joel Kan, MBA's Associate Vice President of Economic and Industry Forecasting. "The drop in rates spurred an uptick in demand for refinances. Activity increased over 6 percent, with borrowers notably seeking conventional and government loans. After a solid stretch of purchase applications growth, activity decreased for the fifth time in six weeks, but was still over 25 percent higher than a year ago, and has increased year-over-year for six straight months. 2020 continues to overall be a strong year for the housing market." 

The FHA share of total applications decreased to 11.1 percent from 11.7 percent and the VA share increased to 12.2 percent from 11.4 percent. The USDA share was unchanged from 0.5 percent the previous week. The average origination balance of loans declined from $322,900 the prior week to $321,700 and for purchase loans increased from $372,600 to $373,000.

The average contract interest rate for 30-year fixed-rate mortgages (FRM) with balances at or below the conforming limit of $510,400, increased to 3.01 percent from 3.00 percent. Points rose to 0.38 from  0.35 and the effective rate increased. 

The average contract interest rate for jumbo 30-year FRM, loans with balances greater than $510,400, decreased 10 basis points to 3.18 percent. Points dipped to 0.30 from 0.31 and the effective rate decreased from last week. 

The rate for 30-year FRM backed by the FHA decreased to 3.08 percent with 0.26 point. The prior week the rate was 3.14 percent with 0.35 point. The effective rate also moved lower.

Fifteen-year FRM had an average rate of 2.55 percent, down from 260 percent. Points dipped to 0.35 from 0.37 and the effective rate decreased.

The average contract interest rate for 5/1 adjustable rate mortgages (ARMs) decreased to 2.67 percent from 3.05 percent and points decreased to 0.52 from 0.64. The effective rate moved lower. The ARM share of activity remained unchanged at 2.1 percent of total applications. MBA's Weekly Mortgage Applications Survey has been conducted since 1990 and covers over 75 percent of all U.S. retail residential applications Respondents include mortgage bankers, commercial banks, and thrifts. Base period and value for all indexes is March 16, 1990=100 and interest rate information is based on loans with an 80 percent loan-to-value ratio and points that include the origination fee.

MBA says the share of loans that are in active forbearance continues to shrink. During the week ended October 25 that share decreased by 7 basis points to 5.83 percent which translates to approximately 2.9 million homeowners. By stage, 23.95 percent of total loans in forbearance are in the initial forbearance plan stage, while 74.49 percent are in a forbearance extension. The remaining 1.56 percent are forbearance re-entries.

Much of the improvement came in the share of Fannie Mae and Freddie Mac loans. The percentage of those in forbearance dipped by 6 basis points to 3.66 percent, the 21st straight week of decline.  The share of forborne Ginnie Mae (VA/FHA) loans decreased 4 basis points to 8.13 percent, and the forbearance share for portfolio loans and private-label securities (PLS) decreased by 8 basis points to 8.82 percent.

The percentage of loans in forbearance for independent mortgage bank (IMB) servicers decreased 8 basis points to 6.27 percent, while the percentage of loans in forbearance for depository servicers remained unchanged from the previous week at 5.86 percent.

"With more borrowers exiting forbearance in the prior week, the share of loans in forbearance declined across all loan types. Almost half of forbearance exits to date have been from borrowers who remained current while in forbearance, or who were reinstated by paying back past-due amounts," said Mike Fratantoni, MBA's Senior Vice President and Chief Economist. "The share of loans in forbearance has returned to levels last seen in early April, but it still remains remarkably high. Further improvement will require ongoing recovery in the job market, as well as additional fiscal stimulus."

MBA's latest Forbearance and Call Volume Survey covers the period from October 19 through October 25, 2020 and represents 75 percent of the first-mortgage servicing market (37.3 million loans).