Loan Apps Turn Down Again As Rates Breach 6.5%

Mortgage loan application volume returned to its downward trajectory, wiping out gains from last week as mortgage rates breached 6.5% for the first time since mid-2008, according to the Mortgage Bankers Association’s weekly survey.

The adjusted Market Composite Index, a measure of mortgage loan application volume, dropped by 3.7%, effectively negating a 3.8% rise last week.

The adjusted purchase index fell 0.4%, while the unadjusted purchase index decreased 1% and was 29% lower YOY.

The refinance index dropped by 11% and was 84% lower than the same time last year. Refis made up 30.2% of total applications.

“Applications for both purchase and refinances declined last week as mortgage rates continued to increase to multi-year highs following more aggressive policy measures from the Federal Reserve to bring down inflation. Additionally, ongoing uncertainty about the impact of the Fed’s reduction of its MBS and Treasury holdings is adding to the volatility in mortgage rates,” said Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting. 

“With rates now more than double what they were a year ago, the pace of refinancing is running at a 22-year low and last week was more than 80% below last year’s level. Similarly, purchase activity was 29% lower than a year ago, with higher rates and economic uncertainty weighing on buyers’ decisions.”

ARM activity rose to 10.4% of total applications and nearly 20% of dollar volume.

Kan noted that ARM loans are a “viable option” for borrowers in this environment.

In the 1990s and early 2000s, adjustable-rate mortgages were popular with first-time buyers and families upgrading to larger homes.

But they fell out of favor due to the nature of an adjustable rate and many Americans found they had shot themselves in the foot if they got caught in a rate that went above their means.

“I am not big on ARMS,” Matt Abraham of Homestar Financial told The Mortgage Note. “I have been doing this for 24 years and people’s living situations can be unpredictable. Even though there are the best intentions of exiting an ARM, sometimes it just doesn’t work out that way.”

Abraham said there are people an ARM is good for, but if borrowers plan to get in it is key to plan to get out.

“If you definitely know you are exiting a property, an ARM can be a good thing. Military people are a good example of someone who will be relocating in a few years. That sort of example, an ARM could be a good thing to go with,” Abraham said.

The FHA share of total applications fell from 13.3% to 12.5%. The VA share dropped to 10.7% from 10.9% of total applications, and the USDA share remained unchanged at 0.6%.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances increased from 6.25% to 6.52%.

The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances rose from 5.79% to 6.01%.

The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA increased from 5.85% to 6.17%, and for 5/1 ARMs rose from 5.14% to 5.30%.

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