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Mortgage Applications Hit 15-Year Bottom Despite Low Rates

Cresting on low tides in credit supply and buyer confidence, fewer first-time and repeat homebuyers filed mortgage applications last week, according to a weekly survey released by the ""Mortgage Bankers Association"":http://mbaa.org/default.htm (MBA) Wednesday. The MBA said that overall mortgage loan application volume dropped 2.4 percent, with purchases slamming into a 15-year low.

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The Market Composite Index, which the MBA uses to gauge loan application activity, showed a squeeze in loan volume on a seasonally adjusted basis, while on an unadjusted basis the index fell 2.9 percent from last week.

Meanwhile, the seasonally adjusted Purchase Index fell 5.7 percent from the past week, slowing to a 5.7-percent ebb ├â┬ó├óÔÇÜ┬¼├óÔé¼┼ô the lowest volume amount since 1996. On an unadjusted basis, purchases fell 7.3 percent, lower by the same percentage than applications over the same week last year.

While the four-week moving average for the seasonally adjusted Market Index shot up 6.9 percent, the same fell 2.6 percent for the Purchase Index on the same basis. The adjustable-rate mortgage (ARM) jumped from 5.8 percent to 6.2 percent from the total share of applications.

The Refinance Index revealed a slight dip in refinancing activity, with figures dropping by 1.7 percent from the week before but remaining at a historic high. Overall, refinancing activity leapt to 79.8 percent of total applications, up from 78.8 percent over the same time.

Greg McBride, a senior financial analyst with ""Bankrate"":http://www.bankrate.com/, tells _MReport_ that ""refinancing activity is still pretty high,"" which he says still constitutes nearly 80 percent of all applications.

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He ascribes the spike in activity over the past few weeks to a ""stampede to refinance... as the rates continued moving lower.""

Average contract interest rates for 30-year fixed rate mortgages saw a 4.39-percent spike, up from 4.32 percent, while rates for the 15-year loan went upward from 3.47 percent to 3.56 percent. Origination fees for 80-percent loan-to-value loans declined from 0.88 the last week to 0.86 and 1.00 to 1.08, respectively.

The mortgage applications follow a rash of news about low-end mortgage rates from last week. On Thursday ""Freddie Mac"":http://www.freddiemac.com/ and Bankrate ""revealed"":https://themreport.com/articles/jittery-markets-send-mortgage-rates-to-50-year-lows-2011-08-18 historic dips for the benchmark 30-year fixed-rate mortgage, with each finding that the rate fell to lows not seen since the 1950s.

Speaking to _MReport_, Paul Dales, a senior U.S. economist with ""Capital Economics"":http://www.capitaleconomics.com/, sheds light on the broken marriage between mortgage rates and mortgage applications, which he describes as typically maintaining a seesaw relationship.

""This relationship has broken down over the past five years as the housing market has pushed people off, and perhaps more importantly people are not in any situation to borrow any more money,"" he says. ""The cost of borrowing is more important"" to potential first-time and repeat homebuyers, who he says ""can't raise a down payment to get a mortgage or get financing from banks.""

According to Dales, low lending volume and tight credit requirements are forcing homebuyers to make increasingly higher down payments closer to 20 percent. He says that prevents creditworthy buyers from raising a deposit, adding to economic woes that keep buyers with shoddy credit unable to submit new applications for homes.

Commenting on the nearly 15-year low for mortgage rates, he says the new bottom ""shows that weak economic outlook and low consumer confidence has more than offset any benefit from low mortgage rates, and housing activity continues to fall as a result.""

McBride seems to agree. ""Consumers don't have the confidence to go out and make a big-ticket purchase when they're worried that a recession lurks around the corner,"" he says.

About Author: Ryan Schuette

Ryan Schuette is a journalist, cartoonist, and social entrepreneur with several years of experience in real-estate news, international reporting, and business management. He currently lives in the Washington, D.C., area, where he freelances for DS News and MReport.
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