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Mortgage Applications Increase As Rates Decline

In an encouraging turn of events, mortgage applications were the beneficiary of a steep increase. More people have applied for a home loan than we have grown accustomed to, as interest rates declined in the face of weaker than expected employment reports. According to the Mortgage Bankers Association (MBA), mortgage application volume rose 11.9 percent on a seasonally adjusted basis. Moreover, applications to purchase a home jumped 12 percent while refinancing applications saw an 11 percent increase, both accounted for by seasonally adjusted averages. These improvements, while relatively menial, may help the housing sector recovery gain more traction.

According to the U.S. Bureau of Labor Statistics, we are currently experiencing the weakest job participation rate since 1978. The lack of employment is a testament as to why so many are barred from home ownership and why others are unable to stay current on their mortgage. Reports of this news caused mortgage rates to decline.

As recently as two weeks ago, the going rate on a 30-year fixed mortgage hovered around 4.72 percent. However, a weaker than expected December employment report triggered a drop in mortgage rates. The employment rate has essentially helped reduce the average rate to 4.66 percent. This is particularly encouraging, as rates had been rising in response to the Federal Reserve’s recent announcement of tapering its purchases of mortgage-backed bonds.

“The drop in rates was large enough to trigger a pickup in refinance volume,” noted Michael Fratantoni, the association’s chief economist. “The increase in purchase volume is more likely reflecting an increase coming out of the holidays, beyond what our seasonal adjustment model anticipated.”

It is important to note that Fratantoni exhibits a sense of reservation in regards to the recent increase in mortgage applications. While the jump is encouraging, purchase applications are nowhere near where we want them to be. The increase has merely returned respective applications back to the same levels we saw in November. In fact, even with the increase, purchase applications are still 10 percent below where they were this time last year. Conversely, refinance applications are down a staggering 65 percent from this time last year.

With the holidays officially over and buying patterns returning to normal, the unanticipated rise in purchase applications may suggest that the housing sector is in store for a strong spring season. It is important, however, that we temper our expectations. Real estate agents continue to report weak buyer participation. Moreover, new mortgage rules are making it increasingly difficult for borrowers to receive loan approval. These conditions, and several others, are preventing the housing sector recovery from gaining the traction we had hoped for.

Prior to the new mortgage rules, lending practices and underwriting had actually eased to accommodate prospective buyers.

“2013 closed with the loosest credit requirements of the year,” said Jonathan Corr, president of Ellie Mae, a mortgage software and data company, in a report released Wednesday. “The average FICO score for all closed loans last month was 727, 11 points below the 2013 average and 21 points lower than December 2012.”

The report acknowledged that 31 percent of the loans that closed last month had a FICO score under 700. Only 21 percent of the loans that closed in December 2012 were below that mark.

According to Mortgage News Daily, the average rate on a 30-year fixed loan began to drop Friday in response to less than encouraging employment rates. It fell from 4.62 percent Thursday to 4.52 percent by the end of the day Friday. By Monday, it was at 4.47 percent, but then came up again Tuesday to 4.50 percent.

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