Mortgage Applications Rise to End January

Mortgage application volumes edged up slightly in January's last week as another drop in interest rates spurred an increase in refinancing.

The Mortgage Bankers Association (MBA) said Wednesday that mortgage loan applications rose a seasonally adjusted 1.3 percent for the week ending January 30. It was the third increase of the month, following a minor holiday-adjusted drop the previous week.

MBA's Refinance Index rose 3 percent week-over-week, reflecting renewed interest among homeowners for refinancing as the average 30-year fixed rate slipped to 3.79 percent, its lowest in more than a year and a half.

Including the latest increase, refinance application volume for the entire month of January saw a 54 percent surge from the end of 2014, according to macroeconomic research firm Capital Economics.

"We expect this is the start of a refinancing boom that will last for the first half of 2015 and see refinancing volumes rise by 200 percent," said Paul Diggle, property economist for Capital Economics, in a note.

The late-month implementation of lower Federal Housing Administration (FHA) mortgage insurance premiums also played a role, sending FHA refinance applications up by 76.5 percent week-on-week.

"Conventional refinance volume was up only 0.5 percent for the week while VA [Veterans Affairs] refinance volume was down 24.3 percent," said Lynn Fisher, VP of research and economics for MBA. "FHA purchase applications were also up 12.4 percent over the week prior, despite a decrease in purchase applications in the rest of the market."

Seasonally adjusted, home purchase applications fell 2 percent over the week, according to MBA.

The results fit with the Federal Reserve's recently released Senior Loan Officer Opinion Survey, which showed demand for home purchase mortgages weakening across most loan categories, even as credit standards continue to ease.

Despite that cooldown, mortgage executives surveyed late last year by Fannie Mae said they anticipate purchase volume to recover in the year ahead, though it may take some time for the market to warm back up.

"Although lenders have become increasingly concerned with weak consumer demand over the last year, they are still optimistic about the mortgage business for the longer term," said Steve Deggendorf, director of business strategy for Fannie Mae's Economic & Strategic Research Group. "[L]enders seem to have adjusted to handling compliance issues and can focus more on their firm's longer-term strategy and business."