Mortgage applications soar ahead of Fed meeting

Continuing their upward trajectory, mortgage applications increased 29.7% from one week earlier, according to data from the Mortgage Bankers Association (MBA)’s weekly mortgage applications survey for the week ending Sept. 12.

On an unadjusted basis, the index increased 43% compared with the previous week. Last week’s results included an adjustment for the Labor Day holiday.

The refinance index increased 58% from the previous week and was 70% higher than the same week one year ago. The refinance share of mortgage activity increased to 59.8% of total applications, up from 48.8% the previous week.

The seasonally adjusted purchase index increased 3% from one week earlier. The unadjusted purchase index increased 12% compared with the previous week and was 20% higher than the same week one year ago.

“Indicative of the weakening job market, and in anticipation of a rate cut from the Federal Reserve, mortgage rates last week dropped to their lowest level since last October, with the 30-year fixed rate declining to 6.39%. Homeowners responded swiftly, with refinance application volume jumping almost 60% compared to the prior week,” Mike Fratantoni, MBA’s senior vice president and chief economist, said in a statement.

“Homeowners with larger loans jumped first, as the average loan size on refinances reached its highest level in the 35-year history of our survey. Almost 60% of applications were for refinances, but there was also a pickup in purchase applications.”

Fratantoni added that “even as 30-year fixed rates reached their lowest level in almost a year, more borrowers, and particularly more refinance borrowers, opted for adjustable-rate loans, with the ARM share reaching its highest level since 2008″ at 12.9%.

“Notably, ARMs typically have initial fixed terms of five, seven, or ten years, so those loans do not pose the risk of early payment shock that pre-2008 ARMs did. Borrowers who do opt for an ARM are seeing rates about 75 basis points lower than for 30-year fixed-rate loans.”

The Federal Housing Administration (FHA) share of applications decreased to 16.3%, down from 18.5% the week prior. The U.S. Department of Veterans Affairs (VA) share increased from 15.3% to 15.8% during the week, while the U.S. Department of Agriculture (USDA) share dropped from 0.6% to 0.5%.

The average contract interest rate for 30-year fixed mortgages decreased to 6.39%, down 10 basis points during the week. The average rate for 30-year fixed mortgages with jumbo loan balances increased 4 bps to 6.48%.

The average rate for 30-year fixed mortgages backed by the FHA decreased 13 bps to 6.14% and rates for 15-year fixed loans decreased 7 bps to 5.63%. Rates for 5/1 ARMs moved 12 bps lower to 5.65%.