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Mortgage Applications Index Drops to 12-Year Low

Mortgage application volume fell again last week, erasing any gains made the week after Thanksgiving.

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The ""Mortgage Bankers Association"":http://mba.org/default.htm (MBA) reported a 5.5 percent decline (seasonally adjusted) in loan applications for the week ending December 13. On an unadjusted basis, MBA's Market Composite Index was down 6 percent.

According to Mike Fratantoni, MBA's VP of research and economics, the latest index is the lowest it's been in more than 12 years.

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""Both purchase and refinance applications fell as interest rates increased going into today's Federal Open Market Committee [FOMC] meeting,"" Fratantoni explained.

With a statement expected from the FOMC Wednesday afternoon, analysts are divided on whether or not the Federal Reserve will announce cuts in its ongoing quantitative easing strategy. Recent economic reports indicate better-than-expected strength, but some speculate it still won't be enough for Fed chair Ben Bernanke and the other committee members to make a change.

MBA's Refinance Index fell 4 percent on a weekly basis, and the refinance share of total mortgage activity dropped a percentage point to 65 percent.

At the same time, the seasonally adjusted Purchase Index decreased 6 percent from one week earlier, falling to its lowest level in the last year. The unadjusted Purchase Index decreased 9 percent week-over-week and was 12 percent lower than the same week in 2012.

Meanwhile, the average contract interest rate for a 30-year fixed-rate mortgage last week was 4.62 percent--the highest level since September--with points increasing to 0.38 (including the origination fee) for 80 percent loan-to-value ratio loans.

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