Falling Rates, Booming Refi Demand Boost Application Activity

A plunge in mortgage interest rates gave lift to applications for the first week of December, according to the ""Mortgage Bankers Association's"":http://www.mbaa.org/default.htm (MBA) Weekly Mortgage Applications Survey.

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The survey's Market Composite Index, a measure of application volume, increased 6.2 percent on a seasonally adjusted basis for the week ending December 7. On an unadjusted basis, the index was up 6 percent from the previous week.

The increase was propelled mostly by a surge in refinance applications. The survey's Refinance Index increased 8 percent from the previous week to its highest level since mid-October. The refinance share of total activity increased from 82 percent to 84 percent--its highest level since January 2009, according to Mike Fratantoni, MBA's VP of research and economics.

The share of refinance applications filed under the Home Affordable Refinance Program (HARP) rose to 29 percent, 2 percentage points higher than before.

Meanwhile, applications for purchase lending also increased, though at a more modest rate. The seasonally adjusted Purchase Index increased 1 percent from one week earlier, while the unadjusted index was down 4 percent. Purchase applications have increased for five straight weeks now and are ""running almost ten percent above their level at this time last year,"" according to Fratantoni.

MBA's average contract interest rate for a 30-year fixed-rate mortgage was 3.47 percent for the week, a new record low for the survey. The average for the previous was was 3.52 percent.

Fratantoni attributed the drop in rates to ""[c]ontinued uncertainty due to the lack of resolution regarding the fiscal cliff.""