Application Index Reflects Greece, Tax Credit

The Greek debt crisis as well as the end of the homebuyer tax credit program both had an impact on mortgage application volume, found the Mortgage Bankers Association's Market Composite Index for the week ended May 7, 2010. The MCI increased 3.9% on a seasonally adjusted basis from one week earlier and on an unadjusted basis, it increased 3.4%. "The recent plunge in rates on U.S. Treasury securities, due to a flight to quality as investors worldwide sought shelter from the Greek debt crisis, benefited U.S. mortgage borrowers last week. Rates on 30-year mortgages dropped to their lowest level since mid-March. As a result, refinance applications for conventional loans jumped, hitting their highest level in six weeks," said Michael Fratantoni, MBA's vice president of Research and Economics. "In contrast, purchase applications fell almost 10% in the first week following the expiration of the homebuyer tax credit, as the tax credit likely pulled some sales into April that would otherwise have occurred in May or later." The Refinance Index increased 14.8% from the previous week while the seasonally adjusted Purchase Index decreased 9.5% from one week earlier. As a result of the drop in rates, the market share of refi applications reversed its recent decline, increasing to 57.7% of total applications from 51.9% the previous week. The market share of adjustable rate mortgage applications remained at 6.3%. The average contract interest rate for the 30-year fixed rate mortgage fell six basis points from 5.02% to 4.96% for the current week with points decreasing from 0.92 to 0.91 (including the origination fee) for loans with an 80% percent loan-to-value ratio, the association reported. The average contract interest rate for 15-year FRMs declined 2 bps to 4.32%. The average contract interest rate for one-year ARMs declined 17 basis points from 7.03% last week to 6.86% this week.