Refi Applications Hit 7 Month Highs
Refinancing increased its already overwhelming dominance of the mortgage market during the week ended November 20. The Mortgage Bankers Association (MBA) said the refinancing share of mortgage applications topped 70 percent and refinancing accounted for most of the weeks increased volume. MBA's Market Composite Index, a measure of mortgage loan application volume, increased 3.9 percent on a seasonally adjusted basis from one week earlier and was 3 percent higher unadjusted.
After being essentially flat since the end of October, the Refinance Index increased 5 percent last week and was 79 percent higher than the same week one year ago. The refinance share of mortgage activity increased to 71.1 percent of total applications from 69.8 percent the previous week.
Purchasing volume increased for the second straight week. The seasonally adjusted Purchase Index increased 4 percent although it did decline 2 percent on an unadjusted basis. Volume was 19 percent higher than the same week one year ago.
Joel Kan, MBA's Associate Vice President of Industry and Economic Forecasting said, "Thirty-year fixed mortgage rates dropped seven basis points to 2.92 percent, another record low in MBA's survey. Weekly mortgage rate volatility has emerged again, as markets respond to fiscal policy uncertainty and a resurgence in COVID-19 cases around the country.
"The decline in rates ignited borrower interest, with applications for both home purchases and refinancing increasing on a weekly and annual basis," Kan said. "The ongoing refinance wave has continued into November. Both the refinance index and the share of refinance applications were at their highest levels since April, as another week of lower rates drew more conventional loan borrowers into the market."
Added Kan, "Amidst strong competition for a limited supply of homes for sale, as well as rapidly increasing home prices, purchase applications increased for both conventional and government borrowers. Furthermore, purchase activity has surpassed year-ago levels for over six months."
The FHA share of total applications decreased to 10.0 percent from 10.5 percent the previous week and the VA share dropped to 11.8 percent from 12.1 percent. USDA applications decreased from an 0.5 share to 0.4 percent. The average loan balance during the week increased from $314,600 to $318,33 and purchase mortgage balances from $368,900 to $374,100.
Average contract rates for all loans declined on both a contract and an effective basis except for those for jumbo 30-year fixed rate mortgages (FRM). The contract rate for loans with origination balances exceeding the conforming limit of $510,400 increased from 3.11 percent with 0.28 point to 3.18 percent with 0.27 point and the effective rate increased.
Thirty-year FRM with loan balances at or below the conforming loan limit saw rates falling to a survey low of 2.92 percent from 2.99 percent, with points decreasing to 0.35 from 0.37.
The rate for 15-year fixed-rate mortgages declined 8 basis points to 2.5 percent, also a survey low. Points dipped to 0.34 from 0.35.
The average contract interest rate for 5/1 adjustable rate mortgages (ARMs) fell 21 basis points to 2.63 percent from 2.84 percent, with points decreasing to 0.44 from 0.53. The effective rate decreased from last week. The adjustable-rate mortgage (ARM) share of activity remained unchanged at 1.9 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.
The Association's latest Forbearance and Call Volume Survey revealed that the total number of loans now in forbearance increased from 5.47 percent of servicers' portfolio volume in the prior week to 5.48 percent as of November 15, 2020. According to MBA's estimate, 2.7 million homeowners are in forbearance plans.
The share of Fannie Mae and Freddie Mac loans in forbearance dropped for the 24th week in a row to 3.35 percent, but this was only a 1 basis-point improvement. The share of both Ginnie Mae (FHA/VA) and portfolio and private label security (PLS) loans in forbearance rose, the former by 3 basis points to 7.73 percent, and the latter by 10 basis points to 8.48 percent.
By stage, 21.32 percent of total loans in forbearance are in the initial forbearance plan stage, while 76.76 percent are in a forbearance extension. The remaining 1.92 percent are reentries into the program.
The percentage of loans in forbearance for independent mortgage bank (IMB) servicers was unchanged at 5.94 percent, and the share for depository servicers increased 1 basis point from the previous week to 5.44 percent.
"A marked slowdown in forbearance exits, as well as a slight rise in the share of Ginnie Mae, portfolio, and PLS loans in forbearance, led to an overall increase for the first time since early June. The decline in exits in the prior week follows a flurry of them last month, when many borrowers reached the six-month point in their forbearance terms," said Mike Fratantoni, MBA's Senior Vice President and Chief Economist. "The share of GSE loans in forbearance continued its downward trend and have now declined every week for six straight months."
Added Fratantoni, "Incoming housing market data remain quite strong, with existing-home sales in October reaching their fastest pace since 2005, and the inventory of homes on the market hitting a record low. However, renewed weakness in the latest job market data indicate that many homeowners are continuing to experience severe hardships due to the pandemic and still need the support that forbearance provides."
Of the cumulative forbearance exits for the period from June 1 through November 15, 2020:
- 30.5 percent represented borrowers who continued to make their monthly payments during their forbearance period.
- 24.0 percent resulted in a loan deferral/partial claim.
- 16.8 percent resulted in reinstatements, in which past-due amounts are paid back when exiting forbearance.
- 12.9 percent represented borrowers who did not make all their monthly payments and exited forbearance without a loss mitigation plan in place yet.
- 7.1 percent resulted in loans paid off through either a refinance or by selling the home.
- 6.8 percent resulted in a loan modification.
- 1.9 percent resulted in repayment plans, short sales, a deed-in-lieu, or other reasons.
MBA's latest Forbearance and Call Volume Survey covers the period from November 9 through November 15, 2020 and represents 74 percent of the first-mortgage servicing market (37.2 million loans).