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Refinancing Activity Ups Mortgage Applications 21.7%

Coupled with an interest in conforming jumbo loans, a wave of uncertainty over economic news helped throw homeowners into a refinancing frenzy last week, feeding a surge in mortgage applications across the board. Despite upticks, purchase applications continued to flat-line in a market overshadowed by weak consumer confidence, according to statements and a weekly survey by the ""Mortgage Bankers Association"":http://mbaa.org/default.htm (MBA).

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The trade group's survey revealed an upshot in mortgage applications by 21.7 percent from the previous week. Tallying up total mortgage loan application volume, the Mortgage Composite Index recorded the increase on a seasonally adjusted basis, alongside a 20.9-percent jump on a seasonally unadjusted basis.

A 30.4-percent gain in the Refinance Index showed up the Purchase Index, which trailed by 0.9 percent on a seasonally adjusted basis and 1.2 percent on an unadjusted basis from a week earlier. Nonetheless, total purchases climbed 4.9 percent above application volume recorded over the same period in 2010.

Mike Fratatoni, MBA's VP of research and economics, chalked up the bevy of mortgage applications to a string of events in the markets and rock-bottom mortgage rates.

""Amid substantial market turmoil last week, mortgage rates dropped to their lowest levels of the year, and refinance applications jumped more than 30 percent to their highest levels of the year,"" he said in a ""statement"":http://mbaa.org/NewsandMedia/PressCenter/77575.htm. ""Over the past month, refinance application volume has increased by 63 percent. Refinance applications for jumbo loans increased by almost 75 percent relative to last week. Despite these low mortgage rates, applications for home purchase have remained little changed through the summer.""

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Speaking to _MReport_, Fratatoni frames the jump in mortgage applications around buyer interest in conforming jumbo loans ahead of an October 1 expiration date.

""You may have homebuyers really motivated to pick up those loans before the rate changes,"" he says, adding that MBA eyes and ears in Washington, D.C., see Congress letting the limits expire.

""I don't expect the expiration to have an impact on mortgage applications in the near term,"" he adds.

Refinancing activity drove a sizeable share of mortgage applications, with applicants submitting 5.5 percent more paperwork than last week, bringing total applications to 75.6 percent from 70.1 percent seen the week before.

The MBA also found a seasonally adjusted 9.7-percent increase for the four-week moving average, which stayed the same for the Purchase Index on a seasonally adjusted basis. Meanwhile, adjustable-rate mortgages fell a few percentage points from the week before last, cresting at 6.1 percent after a 6.6-percent decline.

According to the survey, contract interest rates for 30-year fixed-rate loans declined from 4.45 percent to 4.37 percent, as points leapt from 0.78 to 1.07 for loan-to-value (LTV) ratio loans valued at 80 percent, alongside a falling effective rate. The 15-year fixed-rate stayed largely the same from last week, even with points falling from 1.02 to 0.96 for LTV loans valued at 80 percent. The effective rate also fell over the same period.

Asked about how successive U.S. debt and GSE downgrades will impact mortgage applications next week, Fratatoni says that anecdotal information received from MBA members seems to signal continuing spikes in refinance activity.

""S&P was not exaggerating the budget threat at all,"" he says. Unless policymakers substantively trim the budget, he says, ""you├â┬ó├óÔÇÜ┬¼├óÔÇ×┬óre going to have the federal government borrowing more, and that will impact borrowers and investors. People can debate the fine points but the overall trend is troubling, and I think it's important for policymakers to do something.""

And his predictions for mortgage applications next week?

""Mortgage rates are going to come down further, so you can expect homebuyers are going to be doing some more refinance activity,"" he predicts.