Story URL: http://news.medill.northwestern.edu/chicago/news.aspx?id=209833
Story Retrieval Date: 3/8/2014 2:16:34 PM CST
The Mortgage Bankers Association surveys more than 75 percent of U.S. residential mortgage applications to calculate its weekly index.
Decline in refinancing drags down mortgage applications
Applications for mortgages declined last week for the fourth week in a row, according to a survey released Wednesday.
The Mortgage Bankers Association, a Washington-based trade group representing the real estate financial industry, said applications decreased by 4.8 percent in the week ended Oct. 26. The survey covers more than 75 percent of U.S. residential mortgage applications.
Even though applications for new mortgages were up by 0.5 percent, refinancing applications were down significantly—by 6 percent. The decline could be related to fewer people qualifying to refinance their home, according to Anika Khan, a senior economist at Wells Fargo Securities LLC.
“People who are not underwater have already refinanced. People who want to refinance but couldn’t are already underwater,” says Khan. People who owe more on their mortgages than their homes are worth are said to be “underwater.” Because interest rates are at near historic lows homeowners who already have refinanced are receiving very attractive rates and have no need to refinance again, Khan added.
Refinances made up 80 percent of the total number of loan applications while adjustable-rate mortgages made up just 4 percent.
Even though refinancing is significantly down, the total amount of mortgage applications was up 21.6 percent from the year-over-year period.
“We’ve seen an overall improvement in the housing market and selling activity is also showing improvement,” said Khan. The slow pace of purchase applications "is heavily correlated to the slowing momentum of the housing market.”
Interest rates continue to stay low. For a 30-year fixed-rate mortgage, the interest rate is averaging 3.65 percent, down from 4.31 percent a year ago. For a 5-year adjustable-rate mortgage, the interest rate is 2.66 percent, down from 3.09 percent a year ago.
“We are likely to continue to see refinances,” said Khan. “Because they are weekly numbers, it is important to look at year-over-year. It lends itself to the very modest recovery.”