Refi Share of Mortgage Applications Continues to Shrink

The volume of mortgage applications as measured by the Mortgage Bankers Association's (MBA's) Market Composite Index declined during the week ended October 29. The Index was down 3.3 percent on a seasonally adjusted basis and 4 percent unadjusted when compared with the prior week.

The Refinance Index was also down 4 percent and was 33 percent below its level the same week in 2020.  The refinance share of mortgage activity declined for the fifth straight week, dipping to 61.9 percent of total applications from 62.2 percent the week before.

The Purchase Index was lower than the prior week by 2 percent and 3 percent on an adjusted and unadjusted basis respectively. It was down 9 percent on a year-over-year basis.

"Mortgage rates decreased for the first time since August, as concerns about supply-chain bottlenecks, waning consumer confidence, weaker economic growth, and rising inflation pushed Treasury yields lower. Most of the decline in rates came later in the week, which is likely why refinance applications declined to the lowest level since January 2020, and the overall share of activity fell to the lowest since July 2021," said Joel Kan, MBA's Associate Vice President of Economic and Industry Forecasting. "Government refinance applications fell for the sixth straight week, as it becomes evident that an increasing number of borrowers have already refinanced."

Added Kan, "Purchase activity continues to be held back by high prices and low for-sale inventory, but current applications levels still point to healthy housing demand. MBA is forecasting for a record $1.6 billion in purchase mortgage originations this year, and sustained demand leading to another record year in 2022."

The FHA share of total applications decreased to 9.2 percent from 10.4 percent the prior week and the VA share was 9.9 percent compared to 10.6 percent. USDA loans accounted for the same 0.5 percent share as a week earlier. The average mortgage size during the week was $335,900 and purchase mortgages averaged $407,600. The previous week's balances were $334,600 and $409,500.

The average contract interest rate for 30-year fixed-rate mortgages (FRM) with balances at or below the conforming limit of $548,250 decreased 6 basis points to 3.24 percent with points unchanged at 0.34. The effective rate declined to 3.34 percent. 

Jumbo 30-year FRM's, loans with origination balances exceeding the conforming limit, had a rate of 3.29 percent with 0.27 point. The previous week the rate was 3.34 percent with 0.29 point. The effective rate was 3.37 percent.

FHA-backed 30-year FRMs had a rate of 3.29 percent down from 3.31 percent. Points were unchanged at 0.38 and the effective rate declined to 3.40 percent.

The average rate for 15-year FRMs ticked down 1 basis point to 2.58 percent. Points decreased to 0.29 from 0.33 and the effective rate edged down to 2.65 percent.

The rate for 5/1 adjustable-rate mortgages (ARMs) decreased to 2.88 percent with 0.11 point from 2.89 percent with 0.13 point and the effective rate dipped to 2.92 percent. The ARM share of activity increased to 3.2 percent of total applications from 3.1 percent.

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 said the number of loans in active forbearance plans decreased by 6 basis points to 2.21 percent of servicers' portfolio volume during the week ended October 24. According to MBA's estimate this leaves 1.1 million homeowners in forbearance. By stage, 15.6 percent of those loans are in the initial forbearance plan stage, while 74.2 percent are in a forbearance extension. The remaining 10.2 percent are forbearance re-entries, including re-entries with extensions. 

The share of Fannie Mae and Freddie Mac loans in forbearance decreased 3 basis points to 0.97 percent. And Ginnie Mae (VA and FHA) loans fell 7 basis points to 2.65 percent. The forbearance share for portfolio loans and private-label securities (PLS) was 5.13 percent, 8 basis points lower than the prior week. The percentage of forborne loans in independent mortgage bank (IMB) servicers' portfolios decreased 6 basis points to 2.43 percent and those serviced by depository servicers decreased 4 basis points to 2.07 percent.

"For the first time since March 2020, the share of Fannie Mae and Freddie Mac loans in forbearance dropped below 1 percent. A small decline for this investor category was matched by similarly small declines for Ginnie Mae and portfolio/PLS loans," said Mike Fratantoni, MBA's Senior Vice President and Chief Economist. "Forbearance exits slowed at the end of October to the slowest pace since late August. With so many borrowers having reached the end of their 18-month forbearance term, we expect a steady pace of exits in November."

MBA's latest Forbearance and Call Volume Survey covers the period from October 18 through October 24 and represents 73 percent of the 36.7 million loan first-mortgage servicing market.