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ARMs Race Continues as Mortgage Rates Climb Further Upward

For the second consecutive week, mortgage application volume was on the rise, amid fixed-rate mortgages continuing their upward climb.

The Mortgage Bankers Association (MBA) reported mortgage app volume rising 2% week-over-week, for the week ending May 6, 2022.

After weeks of declining volume, app volume trended upward last week, as news broke of the Fed raising the interest rate by another 50 basis points to 0.75-1.00% in an effort to curb inflationary concerns.

The MBA’s Refinance Index decreased 2% from the previous week, and was 72% lower than the same week one year ago. The seasonally adjusted Purchase Index increased 5% from one week earlier. The unadjusted Purchase Index increased 5% compared with the previous week, and was 8% lower than the same week one year ago.

Freddie Mac reported the 30-year fixed-rate mortgage (FRM) rising to a 13-year high last week of 5.27%, up from 5.10% the previous week, and nearly double the year-over-year rate of 2.96%.

“The increase in mortgage applications last week was driven by a strong gain in application activity for conventional and government purchase loans, even as mortgage rates rose to their highest levels since 2009,” said Joel Kan, MBA’s Associate VP of Economic and Industry Forecasting. “Despite a slow start to this year’s spring home buying season, prospective buyers are showing some resiliency to higher rates. Purchase activity has now increased for two straight weeks.”

By loan type, the FHA share of total applications decreased to 10.5% from 11.1% the week prior, while the VA share of total applications increased slightly to 10.5% from 10.3% the week prior. The USDA share of total applications increased to 0.5% from 0.4% the week prior.

The rise in rates continues to chase away consumers, as the MBA reported the refinance share of mortgage activity dropping to 32.4% of total applications, down from 33.9% the previous week.

“The rapid rise in mortgages rates continues to hit the refinance market, with activity 70% below a year ago,” said Kan. “Most homeowners refinanced to lower rates in the past two years.”

And while refis are dwindling in popularity, interest in adjustable-rate mortgages (ARMs) amid a rising rate market continues to rise, as the share of ARM activity increased to 10.8% of total applications.

“More borrowers continue to utilize ARMs to combat higher rates,” added Kan. “The share of ARMs increased to 11% of overall loans and to 19% by dollar volume.”

About Author: Eric C. Peck

Eric C. Peck has 20-plus years’ experience covering the mortgage industry, he most recently served as Editor-in-Chief for The Mortgage Press and National Mortgage Professional Magazine. Peck graduated from the New York Institute of Technology where he received his B.A. in Communication Arts/Media. After graduating, he began his professional career with Videography Magazine before landing in the mortgage space. Peck has edited three published books and has served as Copy Editor for Entrepreneur.com.

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