Adjustable-rate mortgages surge with lending near longtime lows

A drop in the adjustable-rate mortgage average provided some lift to loan activity last week, as beleaguered trade groups sought help from the Federal Reserve in hopes of providing some market stability. 

The Mortgage Bankers Association's Market Composite Index, which measures application volume based on surveys of the trade group's members, inched up a seasonally adjusted 0.6% from the previous week for the period ending Oct. 6. Despite the slight upturn, "application activity remains depressed and close to multi decade lows," according to Joel Kan, MBA's vice president and deputy chief economist. Seven days earlier, the index had fallen by 6%, while year-over-year, activity was 16.3% lower.

While fixed rates continued their upward trajectory as the economy showed unexpected prolonged strength, the ARM average headed in the other direction, resulting in a 15.3% spike in such loans. Adjustable-rate activity also frequently increases in response to high fixed-rate, and last week's upturn helped lead the composite index higher. 

"The yield curve has become less inverted in recent weeks, and ARM pricing has certainly improved," Kan said in a press release. The contract average for the 5/1 adjustable-rate mortgage dropped 16 basis points to 6.33% from 6.49% in the prior survey. Borrower points used for the loans also decreased to 0.9 from 1.21. 

Adjustable-rate mortgages also made up 9.2% relative to total volume, the highest share in almost a year, the MBA said. The latest data comes as the association this week reported greater credit availability in September thanks in part to lenders adding ARM products.

In contrast to the upswing in adjustable rates, though, fixed averages all accelerated. The contract fixed average for 30-year conforming mortgages leaped to 7.67%, 14 basis points higher than the 7.53% mark of a week earlier. The rate was also 40 basis points higher than it was a month earlier. Borrowers took 0.75 points on average to buy down the rate, decreasing from 0.8 in the previous survey.

With fixed interest rates on the rise and few indications of a significant reversal in the offing, three leading trade groups requested assurances from the Federal Reserve this week in hopes of stemming further volatility. In a joint letter, the MBA, National Association of Home Builders and National Association of Realtors called for a halt to hikes of the federal funds rate and also asked the Fed to temporarily pause any selloff of mortgage-backed securities. 

Mortgage rates, which crossed 6% a little over a year ago and now sit at 23-year highs, have led both purchase and refinance volumes to plummet. While the seasonally adjusted Purchase Index inched up 0.7% week over week, it remained 19.4% under its mark of a year ago. 

The Refinance Index, similarly, rose 0.3% from the prior survey, but sat 8.8% lower on an annual basis. Refinances made up 31.6% of all applications last week, down from 31.7% seven days earlier.

The Government Index, meanwhile, increased a seasonally adjusted 0.4%, with federally sponsored loan applications garnering the same percentage as it did in the prior survey. Federal Housing Administration-backed loans represented 14.4% of all applications, down from 14.5%, but mortgages sponsored by the Department of Veterans Affairs offset that drop with an increase to 10.2% from 10.1% a week earlier. U.S. Department of Agriculture-guaranteed applications made up the same 0.5% share as it did one week prior. 

Fixed mortgage rates jumped up across the board, with the 30-year contract jumbo loan average for loans with balances above conforming levels surging 19 basis points to 7.7% from 7.51%. Points decreased to 0.57 from 0.74.

The contract fixed rate for 30-year FHA-sponsored loans among MBA members climbed up to an average of  7.4% from 7.29% the previous week, with borrower points increasing to 1.08 from 1.01.

Meanwhile, the 15-year contract fixed rate rose 11 basis points to 6.97% from 6.86%. Borrower points also headed upward to 1.18 from 1.14 seven days prior.