Tag Archives: Refinance

Death Valley Days: Mortgage Applications, Credit Cycles And Excess Reserves

The Mortgage Bankers Association released their weekly survey of members (I don’t know if Quicken Loans is a member or not) and it revealed that mortgage REFINANCING applications remain in Death Valley since mortgage rates started increasing back in mid-2016.

Both purchase and refinancing applications were down from the previous week.

Of course, subprime borrower originations have declined since the finacial crisis and the housing bubble burst. But home prices continue to soar despite the malaise in mortgage purchase applications.

Of course, higher capital requirements for commercial banks and the Consumer Financial Protection Bureau helped chill the mortgage market. But with the Federal Reserve encouraging banks NOT to lend by paying interest on bank excess reserves, are we surprised at the malaise in mortgage purchase applications or originations?

Hence, it is not surprising to see a slowdown in the growth of bank credit YoY.

Yes, it is Death Valley Days … at least for mortgage refinancing.

Source: Confounded Interest

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Rescuing the Banks Instead of the Economy

“You can’t bail out the banks, leave the debts in place, and rescue the economy. It’s a zero-sum game. Somebody has to lose. That’s what happened in 2009 when President Obama came in. He invited the bankers to the White House and he said, “I’m the only guy standing between you and the mob with pitchforks,” by which he meant the voters that he was bamboozling. He reassured the bankers. He said, “Look, my loyalty is to my campaign donors not to the voters. Don’t worry; my loyalty is with you.”

Mortgage Refi Applications Plunge To 10 Year Lows As Fed Hikes Rates

On the heels of the 10Y treasury yield breaking out of its recent range to its highest since July 2011, this morning’s mortgage applications data shows directly how Bill Gross may be right that the economy may not be able to handle The Fed’s ongoing actions.

As Wolf Richter notes, the 10-year yield functions as benchmark for the mortgage market, and when it moves, mortgage rates move. And today’s surge of the 10-year yield meaningfully past 3% had consequences in the mortgage markets, as Mortgage News Daily explained:

Mortgage rates spiked in a big way today, bringing some lenders to the highest levels in nearly 7 years (you’d need to go back to July 2011 to see worse). That heavy-hitting headline is largely due to the fact that rates were already fairly close to 7-year highs, although today did cover quite a bit more distance than other recent “bad days.”

The “most prevalent rates” for 30-year fixed rate mortgages today were between 4.75% and 4.875%, according to Mortgage News Daily.

And that is crushing demand for refinancing applications…

Despite easing standards – a net 9.7% of banks reported loosening lending standards for QM-Jumbo mortgages, respectively, compared to a net 1.6% in January, respectively.

According to Wolf Richter over at Wolf Street, the good times in real estate are ending…

The big difference between 2010 and now, and between 2008 and now, is that home prices have skyrocketed since then in many markets – by over 50% in some markets, such as Denver, Dallas, or the five-county San Francisco Bay Area, for example, according to the Case-Shiller Home Price Index. In other markets, increases have been in the 25% to 40% range. This worked because mortgage rates zigzagged lower over those years, thus keeping mortgage payments on these higher priced homes within reach for enough people. But that ride is ending.

And as Peter Reagan writes at Birch Group, granted, even if rates go up over 6%, it won’t be close to rates in the 1980’s (when some mortgage rates soared over 12%). But this time, rising rates are being coupled with record-high home prices that, according to the Case-Shiller Home Price Index, show no signs of reversing (see chart below).

case-shiller home price index

So you have fast-rising mortgage rates and soaring home prices. What else is there?

It’s not just home refinancing demand that is collapsing… as we noted yesterday, loan demand is tumbling everywhere, despite easing standards…

But seriously, who didn’t see that coming?

Source: ZeroHedge

Mortgage Applications Decrease in Latest Mortgage Bankers Association Weekly Survey

The first graph shows the refinance index. The refinance index is down 76% from the levels in May 2013. Refinance activity is very low this year and will be the lowest since year 2000.

The second graph shows the MBA mortgage purchase index. According to the MBA, the unadjusted purchase index is down about 11% from a year ago.

From the MBA: Mortgage Applications Decrease Slightly in Latest MBA Weekly Survey

Mortgage applications decreased 0.2 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending September 26, 2014 …

The Refinance Index decreased 0.3 percent from the previous week. The seasonally adjusted Purchase Index remained unchanged from one week earlier. The unadjusted Purchase Index decreased 1 percent compared with the previous week and was 11 percent lower than the same week one year ago. …
…
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) decreased to 4.33 percent from 4.39 percent, with points decreasing to 0.31 from 0.35 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.

Source: Calculated Risk

Refinance Window Closing Fast: Recent Applications Plunge 22 Percent

Even after adjusting for the holidays, Mortgage Refinance Activity plunged a steep 22%.

The Mortgage Bankers Association returned from its holiday hiatus today, issuing its first update on mortgage applications’ activity since that for the week ended December 16. The results thus include data for the last two weeks and an adjustment to account for the Christmas holiday.

The Market Composite Index, a measure of application volume, for the week ended December 30 was down 12 percent on a seasonally adjusted basis compared to the December 9 summary. Before the adjustment, the drop in application activity was 48 percent.

The Refinance Index decreased 22 percent from two weeks earlier and the seasonally adjusted Purchase Index declined by 2 percent. The unadjusted Purchase Index was 41 percent lower than the two-week old reading and lost 1 percent when compared to the same week in 2015.

Purchase Applications vs. 30-Year Rates:

Its difficult to say at what point consumers thrown in the towel on new home purchases as a number of factors are in play.

Refinance Window Closing Fast:

Refis show a clear pattern. Only those whose interest rate is above the red dotted line is likely to refi. Given closing costs, it’s only profitable to refi when rates are substantially above the red line.

Bear in mind this data is for a slow holiday period. Nonetheless, refi applications behave as expected.

Three rate hikes in 2017? I don’t think so.

By Mike “Mish” Shedlock

Mortgage Application Activity Wraps Up 2016 on a Down Note

Residential loan application activity continued its post-election slump, declining for the sixth time in the eight weeks, according to the Mortgage Bankers Association’s survey for the week ending Dec. 30. The results included adjustments to account for the Christmas holiday.

The Market Composite Index, a measure of mortgage loan application volume, decreased 12% on a seasonally adjusted basis from two weeks earlier, the last time the MBA conducted its Weekly Application Survey. On an unadjusted basis, the index decreased 48% compared with two weeks ago. The refinance index decreased 22% from two weeks ago.

The seasonally adjusted purchase index decreased 2% from two weeks earlier, while the unadjusted purchase index decreased 41% compared with two weeks ago and was 1% lower than the same week one year ago.

The refinance share of mortgage activity increased to 52.2% of total applications from 51.8% over the previous seven-day period.

Interest rate comparisons are made with the period ended Dec. 23. The adjustable-rate mortgage share of activity decreased to 5.4%, while the Federal Housing Administration share increased to 11.6% from 10.7% the week prior.

The VA share decreased to 12.3% from 12.4% and the USDA share increased to 1.1% from 1% the week prior.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) decreased to 4.39% from 4.45%. For 30-year fixed-rate mortgages with jumbo loan balances (greater than $417,000), the average contract rate decreased to 4.37% from 4.41%.

The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA remained unchanged at 4.22%, while for 15-year fixed-rate mortgages backed by the FHA, the average decreased to 3.64% from 3.7%.

The average contract interest rate for 5/1 ARMs decreased to 3.28% from 3.41%.

By Glenn McCullom | National Mortgage News

The Dramatic Impact Of Surging Rates On Housing In One Chart

To visualize the impact the recent spike in mortgage rates will have on the US housing market in general, and home refinancing activity in particular, look no further than this chart from the October Mortgage Monitor slidepack by Black Knight.

The chart profiles the sudden collapse of the refi market using October and November rates. As Black Knight writes, it looks at the – quite dramatic – effect the mortgage rate rise has had on the population of borrowers who could both likely qualify for and have interest rate incentive to refinance. It finds it was cut in half in just one month.

Some more details from the source:

The results of the U.S. presidential election triggered a treasury bond selloff, resulting in a corresponding rise in both 10-year treasury and 30-year mortgage interest rates
Mortgage rates have jumped 49 BPS in the 3 weeks following the election, cutting the population of refinanceable borrowers from 8.3 million immediately prior to the election to a total of just 4 million, matching a 24-month low set back in July 2015
Though there are still 2M borrowers who could save $200+/month by refinancing and a cumulative $1B/month in potential savings, this is less than half of the $2.1B/ month available just four weeks ago
The last time the refinanceable population was this small, refi volumes were 37 percent below Q3 2016 levels

Which is bad news not only for homeowners, but also for the banks, whose refi pipeline – a steady source of income and easy profit – is about to vaporize.

It’s not just refinancings, however, According to the report, as housing expert Mark Hanson notes, here is a summary of the adverse impact the spike in yields will also have on home purchases:

Overall purchase origination growth is slowing, from 23% in Q3’15 to 7% in Q3’16.
The highest degree of slowing – and currently the slowest growing segment of the market – is among high credit borrowers (740+ credit scores).
The 740+ segment has been mainly responsible for the overall recovery in purchase volumes and in fact, currently accounts for 2/3 of all purchase lending in the market today.
Since Q3’15 the growth rate in this segment has dropped from 27% annually to 5% in Q3’16. (NOTE, Q3/Q4’15 included TRID & interest rate volatility making it an easy comp).
This naturally raises the question of whether we are nearing full saturation of this market segment.
Low credit score growth is still relatively slow, and only accounts of 15% of all lending (as compared to 40% from 2000-2006), the lowest share of purchase originations for this group on record.
ITEM 2) The “Refi Capital Conveyor Belt” has ground to a halt, which will be felt across consumer spend. AND Rates are much higher now than in October when this sampling was done.

Source: ZeroHedge | Data Source

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