Mortgage applications unexpectedly decreased by 9.6% with refinancing activity dipping 12.2% and purchase activity increasing 0.9%, the Mortgage Bankers Association (MBA) reported today.
According to Scott Buchta, a managing director at Sandler O'Neill & Partners, although capacity constraints have had an effect on application volumes and mortgage rates, the recent decrease in MBA's index might have been impacted by publicity around the possible changes to the government refinancing programs.
He said that tighter credit standards have also effected application volumes and decreasing home prices are still plaguing the purchase and refinancing markets. Many borrowers, he added, who either purchased or refinanced a home in the past two years might find themselves above the 80% LTV threshold because of falling appraised valuations.
Buchta mentioned that one of the various ideas being discussed to help underwater borrowers is the extension of the Home Affordable Refinance Program (HARP) cut-off date, which is now June 30, 2009.
He said that although there are no formal proposals yet, the Federal Housing Finance Agency's approval would be required, the change to HARP would have a considerable effect on overall refinancing volumes since it allows both previous HLTV borrowers and newer, marginally underwater borrowers, to streamline refinance their loans.
Buchta's firm continues to expect that the majority of refinancing activity will happen in the "cuspier" coupons, mostly in the 15-year 4.0% and 4.5% and 30-year 4.5% and 5.0%.
The 15-year 3.5% and 30-year 4.0% cohorts might experience a pick-up in activity as well, with some of the bigger loans refinancing for a minimal incentive, he said.
Meanwhile, pre-reset hybrid ARMs will continue to refinance as well. The purchase index is still near its 15-year low and reflects the current weak economic conditions and reluctant home-buyer.
He said that limited "trade-up" activity resulting from falling home prices has also started to take a toll on home sales.
Another noteworthy trend in the application data has been the rise in ARM application volumes. ARM applications increased 2.9% last week and now comprise 7.1% of all loans and 13.7% of all volumes resulting from larger loan balances.