Higher mortgage rates are starting to take their toll on the origination business.
Mortgage applications fell 9.5% for the week ending February 11 with the refinancing market share dropping to 64% of all new business, according to new figures released by the Mortgage Bankers Association.
MBA noted that its refi index declined 11.4% on a sequential basis, reaching its lowest reading since early July of 2009.
Scott Buchta, an analyst with Braver Stern, noted that with conforming mortgage rates now at 5.12%, two-thirds of conventional mortgage borrowers do not have an economic incentive to refinance. For borrowers with Federal Housing Administration loans, the ratio is north of 85%.
As for the purchase money business, he said rates rising above 5% have had a "psychological effect on potential home buyers."
Braver believes business has fallen to a level last seen in November 2008, when financial markets were in turmoil worldwide.
Purchase activity is down to a level not seen since August 2010 following the expiration of federal homebuyer tax credits.
"First time home buyers are especially impacted as the effective FHA rate is closer to 5.66% which does not include the extra 85-90 basis points of mortgage insurance that may be added on top of the interest rate depending on how much money a borrower uses for a down payment," said Buchta. "This MI fee is slated to go up 25 basis points in April, further raising the cost of buying a new home."
For mortgage bankers, the numbers are not exactly surprising. Since early December rates have been on the rise, impacting business. (MBA tracks activity through its proprietary application index.)
According to the trade group, the average contract interest rate for a 30-year fixed-rate mortgage fell one basis point to 5.12%, with points increasing from 0.84 to 0.85 (including the origination fee) for 80% loan-to-value ratio loans.
The average contract interest rate for the 15-year FRM increased from 4.29% to 4.34%. Points fell from 1.02 to 0.85.
