Mortgage applications' meager gains contrast previous spike

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Application gains slowed to a crawl last week after soaring earlier as fixed rates that dominate the market experienced a more subdued decline.

Mortgage applications increased 0.6% following a 29.7% jump for the week ending Sept. 12, according to the Mortgage Bankers Association's Weekly Mortgage Applications Survey. On an unadjusted basis, volume increased 0.1%.

"Mortgage rates declined further last week, with the 30-year fixed rate falling to its lowest level since last September to 6.34%," said Mike Fratantoni, MBA's senior vice president and chief economist, in a press release. "Interest rates generally have moved up following the FOMC meeting last week but remain in a range that should continue to lead to increased refinance activity."

Fixed mortgage rates have risen in the near term because lenders priced in the Fed's cut before it occurred but financing costs are ultimately anticipated to fall further over time because monetary policy officials signaled that they have plans for future reductions.

Fannie Mae made downward revisions to its longer-term rate forecasts following the meeting in its latest monthly update. Fannie's measures for rates differ from the MBA's.

The MBA's Refinance Index climbed 1% higher than the previous week, when it recorded a 58% spike, and rose 42% compared with the same week last year. Refinance volume is also now 80% higher than four weeks ago.

The Purchase Index increased 0.3% on a seasonally adjusted basis. The unadjusted Purchase Index decreased 1%, but was up 18% from last year.

"The refinance boost last week was from government applications, with VA refinance volume up almost 15%," Fratantoni said. "While homebuyer demand typically tends to decrease during the fall, purchase application activity remains relatively strong right now."

The refinance share of mortgage activity increased 0.4 percentage points from the previous week to 60.2%, while the adjustable-rate mortgage share decreased to 8.9% of total applications from 12.9%.

Loans backed by the Federal Housing Administration and U.S. Department of Agriculture saw another cut to their share of applications, dropping 0.6 and 0.1 percentage points, respectively, while Department of Veterans Affairs-guaranteed loans again increased their share to 17.5% from 15.8% the week prior.

Three of the five types of mortgages the MBA tracks experienced a drop in interest rates last week compared with the week prior, including:

• 30-year fixed-rate mortgages with conforming loan balances, 6.34% from 6.39%;
• 30-year fixed-rate mortgages with jumbo loan balances, 6.44% from 6.48%;
• and five-year ARMs, 5.53% from 5.65%.

The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA stayed at 6.14%, while 15-year fixed-rate mortgages increased to 5.7% from 5.63%.