Best Week of Year for Refis; MBA sees Purchase Loan gains Next Year

Falling interest rate precipitated arnmajor refinancing rally during the week ended October 17 even though ColumbusrnDay shortened the business weeks in some locations.  The Mortgage Bankers Association’s (MBA’s)rnRefinance Index jumped 23 percent compared to the previous week, the largestrnincrease for the index this year, far surpassing an 11 percent gain in Januaryrnand taking the index to its highest level since November 2013.  Applications for refinancing made up a 65rnpercent share of all applications compared to 59 percent the previous week and thernaverage size of a loan for refinancing rose to $306,000 the highest level sincernMBA started its survey in 1990.</p

Refinance Index vs 30 Yr Fixed</p

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The surgernin refinancing drove the MBA’s Market Composite Index up 11.6 percent on arnseasonally adjusted basis from the week ended October 10 and the unadjustedrnindex rose 12 percent.  Purchase homernmortgages however did not participate in the application booklet.  Both the seasonally adjusted and unadjusted PurchasernIndices fell by 5 percent and the unadjusted index was down 9 percent from thernsame week in 2013. </p

Purchase Index vs 30 Yr Fixed</p

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“Continuingrnconcerns about weak economic growth in Europe and a few US economic indicatorsrnthat came in below expectations caused a flight to quality into US Treasuriesrnlast week, leading to sharp drops in interest rates,” said Mike Fratantoni,rnMBA’s Chief Economist. “Mortgage rates have fallen close to 30 basis pointsrnover the last four weeks.” </p

In arnseparate statement earlier in the week Fratantoni said he expects 2015 to be arnbetter year for purchase mortgages and that overall loan volume will increase byrn7 percent to a total of $1.19 trillion. Purchase originations are projected to growrnby 15 percent to $731 billion from 635 billion in 2014.  Refinancing will fall back by 3 percent torn$457 billion from $471 billion in 2014.  Therntrend will continue in 2016 with purchase originations rising to $791 billion andrnrefinancing falling further to $379 billion. rnThis will bring the total volume in 2016 to $1.17 trillion, slightlyrnbelow 2015 projections.</p

“We are projecting that homernpurchase originations will increase in 2015 as the US economy continues on itsrncurrent path of stronger growth, job gains and declining unemployment. rnThe job market has shown sustained improvement this year; with robust monthlyrnincreases in both payroll jobs and job openings,” Fratantoni said.  “Wernare forecasting that strong job growth, coupled with still low mortgage rates,rnshould translate to an increase in home sales and purchase originations.<br /<br /"Our projection for overall economic growth is 2.9 percent in 2015 and 2.4 inrn2016, which will be driven mainly by strong consumer spending and businessrnfixed investment, as households continue to spend on durable goods, such asrncars and appliances, and as businesses invest in new plant and equipment. rnMoreover, after several years of contraction, the rate of government spendingrnshould no longer be a drag on the economy.<br /<br /"We expect that the 10-Year Treasury rate will stay below three percent throughrnthe first half of next year as concerns about broader global issues have causedrna flight to quality, with investors seeking safety in US Treasuryrnsecurities.  However, if the global turmoil diminishes and US economicrngrowth continues, we anticipate the rate will exceed three percent in thernsecond half of 2015, continuing to increase through 2016.  We expect thernFederal Reserve will keep short-term rates near zero until mid-2015, when wernexpect to see the first fed funds rate increase. <br /<br /"With the recent drop in mortgage rates, some borrowers now have an incentivernto refinance and with the home price gains of the last two years morernhomeowners have enough equity to refinance, so we expect a pickup in refinancernapplication activity over the next few months, which will lead to higherrnrefinance originations in early 2015,” Fratantoni said.<br /<br /MBA upwardly revised its estimate of originations for 2014 to $1.11 trillionrnfrom $1.01 trillion, and for 2013 to $1.85 trillion from $1.76 trillion, tornreflect the most recent data reported in the 2013 Home Mortgage Disclosure Actrn(HMDA) data release.</p

MBA’srnWeekly Mortgage Applications Survey found both contract and effective mortgagernrates down across the board during the week ended October 17.  The average contract interest rate forrn30-year fixed-rate mortgages (FRM) with conforming loan balances ($417,000 orrnless) decreased to 4.10 percent, the lowest level since May 2013, from 4.20rnpercent, with points increasing to 0.21 from 0.17. </p

Thernaverage rate for 30-year jumbo FRM (balances greater than $417,000) decreasedrnto 4.03 percent, the lowest level since May 2013, from 4.14 percent while pointsrnincreased to 0.20 from 0.10.  The raternfor FHA backed 30-year FRM decreased to 3.81 percent, the lowest level since Junern2013, from 3.90 percent, with points decreasing to 0.07 from 0.08.  </p

The<b15-year FRM had an average rate of 3.28 percent, the lowest level since Mayrn2013, with 0.22 point.  The previous weekrnthe rate was 3.41 percent, with 0.28 point.</p

Thernaverage contract interest rate for 5/1 adjustable rate mortgages (ARMs) decreasedrnto 2.94 percent, the lowest level since June 2013, from 3.05 percent, with pointsrndecreasing to 0.37 from 0.38.  The sharernof applications for ARMs jumped last week from 8 percent to 9.4 percent of allrnapplications, the highest level since June 2008. </p

MBA’s surveyrngathers information regarding more than 75 percent of all U.S. retail residentialrnmortgage applications from mortgage bankers, commercial banks and thrifts. Basernperiod and value for all indexes is March 16, 1990=100 and interest rate quotesrnare for loans with an 80 percent loan to value ratio.  Points include the origination fee.

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