For the third week in a row, we have seen a decline in the Mortgage Industry, driven by a steady uptick of higher interest rates, market uncertainty and the pending expiration of the New Home credit.
The Mortgage Bankers Association (MBA) reported that in the week ending October 23rd, mortgage applications fell 12.3%. This is the second week that mortgage applications had double digit losses after a steady increase while rates were lower. The week ending October 16th, we saw mortgage applications drop 13.7%
Meanwhile, the MBA reports that the 30-year fixed-rate mortgages had an interest rate decline to 5.04% from 5.07%. The 15-year fixed-rate increased to 4.53 from 4.51 percent. One-year ARMs decreased to 6.79% from 6.86%. These rates are based on a loan with an 80% LTV (Loan to Value) Ratio.
However, the average points requiring to be paid by a new home buyer has also increased on fixed rate loans making it more difficult for homeowners who don’t have significant capital to obtain the loan.
The mortgage loan market also remains very restricted for many consumers, requiring a FICO credit score of 740 or higher, a LTV ratio at 80% or less, and pay all closing costs including one point or higher. You can elect to pay less up front, which will raise your interest rate, which may be a good option for those who do not plan on keeping their home for longer than 3 years.
The increase in mortgage rates are coming from benchmark Treasury yields moving higher, well outside the defined range that has kept rates relatively stable for a few months. While the market is still nervous about a stock sell-off and an even deeper recession, lenders continue under pressure to lower interest rates. While the fears remain in the market, the demand for AAA rate Treasury debt will remain high, which would encourage a continued steady interest rate environment.
Words also continue to clash in Congress over extending the First Time Home Buyer Tax Credit of $8,000 which is set to expire at the end of November. There are currently two plans being considered on Capitol Hill for its extension. The first calls for a phased out expiration of the existing credit through the end of 2010 where the credit gets smaller as the year progresses. The second plan is calling for an extension through at least June of 2010, but also wants to increase the income-ceiling that limits some from benefiting from the credit, and extend it to any home buyer, not just first-time buyers. Expect to hear a resolution toward the end of November.
However you look at it, the mortgage market continues to be volatile while home prices edge higher in some areas, and fall in others. The increasing uncertainty by Consumers in relation to mortgage lenders is a good sign that there is a long road to the recovery of the housing sector.
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This article includes statistics from the Mortgage Bankers Association (MBA). Their weekly survey of applications covers 50% of all U.S. retail residential mortgage applications.