Demand for mortgage loans dropped following the Fed’s decision to raise interest rates by an additional 75 basis points last week.
The market composite index, a measure of mortgage loan application volume, declined 3.7% for the week ending September 23, compared to the previous week. It was also down 66% compared to the same week in 2021.
The refinance index fell 11% from the previous week and was down 84% from the same week in 2021. The purchase index decreased 0.4% from the previous week and dropped 29% from a year ago.
“Applications for both purchase and refinances declined last week as mortgage rates continued to increase to multi-year highs following more aggressive policy measures from the Federal Reserve to bring down inflation,” said Joel Kan, MBA’s associate vice president of economic and industry forecasting.
Kan added the ongoing uncertainty about the impact of the Fed’s reduction of its mortgage backed securities and Treasury holdings is adding to the volatility in mortgage rates.
Following the Fed’s decision to raise the federal funds rate by another 75 bps, to 3%-3.25%, bringing it back to a level last seen in March 2008, mortgage rates past the 7%-level as of September 27, according to Mortgage News Daily.
As 2022 proves to be a challenging year for the housing market, lenders are looking to take advantage of market downtime by improving their internal processes. HousingWire recently spoke with James Deitch, CEO of Teraverde, about the changes lenders can make to their business models in order to remain profitable.
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With the 30-year fixed-rate mortgage rates more than doubling since January, the pace of refinancing is running at a 22-year low, according to Kan.
The MBA data shows the refinance share of all mortgage activity decreased to 30.2% of total applications this week from the previous week’s 32.5%.
What’s noteworthy is the increase in the share of adjustable-rate mortgages (ARM) applications to 10.4% of the total demand, Kan said. With the recent jump in rates, the ARM share of applications reached about 20% of dollar volume. “ARM loans remain a viable option for qualified borrowers in the rising rate environment,” Kan added.
The Federal Housing Administration’s (FHA) share of total applications fell to 12.5% from the previous week’s 13.3%. The Veterans Affairs’s (VA) share of applications decreased to 10.7%, from 10.9%, and the United States Department of Agriculture’s (USDA) share remained unchanged at 0.6% from the previous week.
MBA’s estimate indicated the average contract 30-year fixed-rate mortgage for conforming loans ($647,200 or less) rose to 6.52%, from the previous week’s 6.25%. Jumbo mortgage loans (greater than $647,200) increased to 6.01% from 5.79% in the same period.
The survey, conducted weekly since 1990, covers 75% of all U.S. retail, residential mortgage applications.