Posturing for Progress

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the latest ORIGINATION statistics offered by the Mortgage Bankers Association (MBA)— total mortgage application volume fell 2 percent from April to May, the first monthly drop since February and the biggest decline since January. Applications for purchase loans fell 1.3 percent, a sharp decline from the 4.6 percent The M Report | 35 se c on da r y m a r k e t M ortgage application data for May lends credence to analysts' predictions of a slowdown in the year's second half, Capital Economics says in its latest US Housing Data Response. According to Capital Economics' data—compiled from a na ly t ic s As rates recover, purchase loans are starting to tumble. s e r v ic i ng Mortgage Applications Dip improvement observed in April. Purchase application volume was down 15 percent from the first week of May through the end of the month. Refinance applications fared worse throughout the month, falling 1.4 percent from April's 3.3 percent increase. From the first week through the end of May, refinance applications were down a total of 40 percent. For the week ending May 31, purchase applications were down 2 percent (seasonally adjusted), while refinance volume was down 15 percent—its lowest level since November 2011. Total application volume was down 11.5 percent, MBA reported. Ed Stansfield, chief property economist for Capital Economics, attributed the declines to the sharp rise in mortgage rates as markets prepare for a potential tapering of the Federal Reserve's mortgage bond buying program. According to MBA's most recent survey, the average 30-year fixed rate was 4.07 percent to kick off June, up nearly half a percentage point from the start of May. "For all the talk of a renewed U.S. housing bubble, today's mortgage applications data are a reminder that the recovery remains highly dependent on loose monetary policy," Stansfield said. Despite that, he added that it is difficult to be certain how much the housing recovery might be set back from May's developments. "Mortgage applications for home purchases are a better gauge of the level of housing demand than refinancing applications. And it is important to keep the rise in mortgage interest rates in perspective," he said. "After all, it seems pretty clear that interest rates have had little bearing on the level of mortgage demand in recent years." He concluded: "Given the recent gains in consumer confidence, we expect mortgage applications to reverse these losses over the next few months. But today's data appear consistent with our view that the housing recovery will slow in the second half of the year." Or ig i nat ion The findings "sit comfortably" with the rise in mortgage lending demand reported in the latest Senior Loan Officer Survey (SLOS) from the Federal Reserve. Thirty-nine percent of banks responding to that survey reported stronger demand for mortgages in the first quarter—the seventh consecutive quarterly rise. "Of course, it's difficult to know just how many of these applications are being approved. But given that a net balance of 7.8 percent of lenders reported loosening credit conditions on residential mortgages in the latest SLOS, it's reasonable to assume that more would-be borrowers are passing banks' credit checks," wrote Paul Diggle, property economist for Capital Economics. Diggle also observed that banks responding to the SLOS were more likely to extend a loan to a borrower with a 20 percent deposit and a FICO score of at least 680 than they were a year ago, indicating an increasing willingness to lend. Refinance application volume also rose, propped up largely by a decline in mortgage interest rates to an average 3.67 percent (30-year fixed). Refinance applications were up 3.3 percent month-over-month in April, continuing March's turnaround in demand. "With the Fed likely to start curbing its asset purchases later in the year, the end of the era of ultra-low mortgage interest rates may be in sight," Diggle said. "But for mortgage payments to return to their longterm average of 22 percent of disposable income, 30-year fixed rates would have to rise all the way to 9 percent. Accordingly, we're optimistic that the nascent improvement in mortgage applications will be sustained." In its Weekly Mortgage Applications Survey for the week ending May 3, MBA reported a 7 percent increase in applications, with refinance applications up 8 percent and purchase applications up 2 percent week-over-week. The association also reported a decline in government share to 29.1 percent, a two-year low.

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