Refinancing activity surged 21% in the week ending Oct. 8 after five weeks of declines, according to the Mortgage Bankers Association's (MBA) weekly survey.
"After five weeks of steadily declining rates to yet another new low, borrowers who had been on the fence jumped off, which factored into refinance activity surging more than 20 percent," said Michael Fratantoni, MBA's vice president of research and economics. The level of the Refinance Index is just under this year's high of 5085 reached in late August when 30-year mortgage rates hit a record low at the time.
The average contract interest rate for 30-year fixed rate mortgages slipped four basis points to 4.21%, which the MBA said was the lowest recorded in their survey. As a percent of total applications, the refinancing share jumped to 83.1% from 78.9%, which is the highest share since January 2009.
Capacity constraints at mortgage bankers have eased to some extent. However, it is questionable whether lenders will ramp up capacity enough to deal with the refinancing flow, and even then, any increases are not likely to be rapid, BNP Paribas analysts noted in recent research.
Meanwhile, the Purchase Index dropped 8.5% to ~183. Fratantoni pointed out that, "Last week saw a big jump in applications for [Federal Housing Administration (FHA)] loans to purchase homes. We surmised that this was due to potential buyers wanting to beat the stricter FHA standards that went into effect Oct. 4. This conjecture was confirmed by the fact that this week FHA applications fell back to a level closer to the average seen over the past four months. "
