Mortgage activity falls, erasing prior week's gains

 Mortgage volumes decreased for the sixth time in seven weeks, as surging interest rates again drove down borrower incentive, according to the Mortgage Bankers Association.  

Following an upswing one week earlier, the MBA's Market Composite Index, a measure of loan activity among the association's members, erased those gains almost entirely, dropping down a seasonally adjusted 3.7% for the seven-day period ending Sept. 23. Compared to levels over the same week in 2021, the index now sits more than 65% lower.

"Applications for both purchase and refinances declined last week as mortgage rates continued to increase to multiyear highs," said Joel Kan, MBA's associate vice president of economic and industry forecasting, in a press release.

The seasonally adjusted Purchase Index edged down by 0.4% and came in 29% off the pace from one year ago, "with higher rates and economic uncertainty weighing on buyers' decisions," Kan said.

After rising more than 10% one week prior, the Refinance Index tumbled 11% and came in 84% lower year over year. The share of refinances relative to overall loan activity also fell back to 30.2% from 32.5% seven days earlier. 

"With rates now more than double what they were a year ago, the pace of refinancing is running at a 22-year low," Kan said.

The Federal Reserve's moves have played a significant role in recent mortgage-rate jumps and their ensuing effects on home lending, according to Kan, with uncertainty surrounding the impact of the Fed's reduction of mortgage-backed securities and Treasury holdings increasing volatility.

The spike in rates has led to renewed interest in adjustable-rate mortgages over the past month, with the ARM share of total weekly volume surpassing 10% last week. Adjustable-rate mortgage applications made up 10.4% of all activity, compared to 9.1% the prior week and also accounted for 20% of dollar volume, almost double its share from September 2021.

While consumers may benefit from ARMs with lower initial payments, renewed interest in the product might not provide as much of a positive effect to nonbank lenders, who have seen profits plummet this year, according to analysts at Keefe Bruyette & Woods. Recent growth "suggests that banks, which originate and portfolio most ARM loans, will take some share from nonbanks if the current interest-rate environment persists," KBW said in a research note.

The interest-rate surge also contributed to a pullback in federally sponsored loan activity, with the share of applications from government programs decreasing last week. Federal Housing Administration-guaranteed loan applications accounted for 12.5% of total volume down from 13.3% a week earlier. The share of Department of Veterans Affairs-sponsored applications dropped to 10.7% from 10.9%, while the slice of loans coming via U.S. Department of Agriculture programs remained unchanged at 0.6%.

Meanwhile, average mortgage sizes saw a small overall uptick, as higher refinance amounts offset shrinking purchase prices. The mean refinance size on last week's applications inched up 1.7% to $271,800 from $267,200 seven days earlier. Average purchase-loan amounts edged down to $411,700 from $413,200, a week-over-week drop of 0.3%. The average size of the entire pool of applications over the weekly period rose by 1% to $369,400 from $365,800.

Mortgage rates among MBA lenders accelerated higher across the board and have now increased by more than a percentage point over the past six weeks, Kan said.

The average contract 30-year fixed-interest rate for loans with conforming balances of $647,200 or less surged 27 basis points to 6.52% from 6.25% seven days earlier, with points increasing to 1.15 from 0.71 for 80% loan-to-value loans.

Also making a large leap, the 30-year fixed contract rate for jumbo loans exceeding the conforming amount averaged 6.01%, rising from 5.79% the prior week. Points increased to 0.7 from 0.46.

The contract interest rate for the 30-year FHA-backed fixed mortgage came in 32 basis points higher, averaging 6.17%, compared to 5.85% seven days earlier. Points increased to 1.31 from 1.15.

The 15-year average jumped by a similar amount as well, with the contract interest rate rising 30 basis points to 5.7% from 5.4% week over week. Points also increased to 1.33 from 1.06. 

Adjustable-mortgage rates also shot up, with the 5/1 ARM averaging 5.3%, compared to 5.14% seven days earlier. Points increased to 1.28 from 0.99.