Smart Borrower Blog

Mortgage Applications Fall Even As Rates Hit Record Lows

Jan 9th, 2009 @ 7:04 AM by Amber Nelson

The demand for home loans decreased in the latest week, according to data from the Mortgage Bankers Association Wednesday, as borrowers wait for interest rates to fall even farther in coming weeks.

The MBA’s seasonally adjusted weekly mortgage application index fell 8.2 percent to 1,143.8 during the week ended January 2, 2008, the first drop in four weeks. The number of home purchase requests actually increased with the purchase index rising 7.3 percent from the previous week but homeowners held back from refinancing causing the refinance index to sink 12.3 percent.

Most analysts, including those from the MBA, attribute the drop in refinancing to plummeting mortgage interest rates and promises from the Federal Reserve to use all tools at its disposal to further bring down home loan costs. The most recent Fed plan has included purchasing $500 billion in mortgage backed securities guaranteed by Fannie Mae, Freddie Mac, and Ginnie Mae. The first round of purchases began on Monday.

“With all the talk the Fed is buying (MBS), rates could drop further and (borrowers) may say, ‘Why not wait a little more'” before refinancing, said Orawin Velz, associate vice president of economic forecasting at the MBA.

Such actions by the Fed are designed to take soured loans off the books and give lenders confidence to make more loans, easing the credit crunch and keeping costs down.

Mortgage interest rates have fallen for roughly the past two months, with the current 30-year fixed rate home loan carrying an average rate of 5.07 percent, excluding points, according to the MBA survey. Rates on 15-year fixed rate mortgages have fallen to 4.67 percent, representing a more than four year record low. Even adjustable rate mortgages have seen rates tumble, with the current one-year ARM resting at 5.90 percent. Many analysts do believe the rates are likely to decrease even more in the coming weeks.

About Amber Nelson
Amber Nelson is a seasoned mortgage industry writer and a regular contributor to and

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