Mortgage Bankers Association weekly mortgage applications increased last in the week for both refinances AND purchases. Everyone expected refinance applications to be up with the new government programs kicking in. But what was surprising was the increase in applications for purchases, which reached a three-month high and appears to be a rising trend.
Increased affordability and buyers picking up great deals on foreclosures are fueling the purchase applications gain, which was the fifth-straight weekly gain.
Mortgage refinancings have increased sharply since early March, reflecting impact from the Obama administration's Making Home Affordable program. (Details available here: More on: April 1st Housing Game Change and Update: Obama Foreclosure Game Plan)
The $75 billion program is geared toward helping what the Treasury Department states could be as many as 7 million to 9 million homeowners, which could result in the refinancing of up to $1 trillion of mortgages, a figure that can be derived from prepayment patterns from past refinancing booms. If half of the eligible homeowners refinance, the figure would be close to $1 trillion.
An increase in mortgage refinancing will be one factor among many that helps nurse the U.S. economic and financial system back to health.
The Mortgage Bankers Association's index on mortgage refinancing increased to 6,813.5 in the week ended April 3, up from 6,600.1 the previous week and a doubling from the end of February. The index is also well above its one-year average of 2,787.28, a figure boosted by this year's decline in mortgage rates, which fell to a record low (dating back to 1990) of 4.78% in the week ended April 2, according to Freddie Mac.
Applications are likely to be very strong throughout April because lenders and servicers will be ready to accept applications under the guise of the Making Home Affordable program. Actual refinancing activity is likely to be strongest in May.
I expect to see foreclosure buying activity to continue to be strong throughout spring and summer buying season. At the same time, new foreclosures will continue to hit the market as all moratoriums are now up and those houses that were in foreclosure, but not lost to foreclosure yet, will now be finally foreclosed. We will be announcing our March US Foreclosure Index report shortly and expect to see a big jump in both pre foreclosures and REOs.
However in April, I am hoping many homeowners will take advantage of either a loan modification or refinance, under the new Making Homes Affordable program that launched April 1st. This should help slow down the pipeline of future foreclosures, but will take a few months before we see those numbers work their way through the system.
Looking beyond the very near term, a number of market forces and policies now in place were seen as eventually leading to economic recovery…
The Institute for Supply Management’s factory index climbed to 36.3 in March, a third consecutive increase.
And consumers are benefiting from lower energy costs and lower mortgage rates. The average rate on a U.S. 30-year fixed mortgage dropped to 4.78 percent last week, the lowest in Freddie Mac data going back to 1971.
Stay tuned for more details.
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