Mortgage lending activity holds on to recent gains

While flattening in recent weeks, mortgage activity is showing some signs of hanging on to its late-summer momentum.

The Mortgage Bankers Association's Market Composite Index, a measure of weekly application volume based on surveys of the trade group's members, squeezed out a seasonally adjusted increase of 1.4% for the seven days ending Sep. 6. Activity climbed up higher for the third week in a row, following the previous survey period's 1.6% rise, with both purchases and refinances lifting numbers. 

As interest rates dipped this summer, application volumes also finished 28.3% higher from year-ago levels. Data was adjusted to account for the Labor Day holiday. 

"With rates almost a full percentage point lower than a year ago, refinance applications continue to run much higher than last year's pace," said Joel Kan, MBA vice president and deputy chief economist, in a press release. 

"Purchase applications increased over the week and are edging closer to last year's levels," he added.  

Mortgage rates tracked by the MBA declined across the board, with the 30-year conforming rate dropping for the sixth straight week. The contract fixed rate ended last week 14 basis points lower at 6.29%, down from 6.43%. Points used to buy down the rate stayed close to the previous weekly mark, pulling back to 0.55 from 0.56 for 80% loan-to-value ratio mortgages. 

Downward rate movements helped push the Refinance Index back up by 0.9% from seven days prior. The index rebounded from a pullback of 0.3% in the previous survey. The sustained retreat in interest rates brought the index 106% higher compared to the same week one year ago. 

The latest data corresponds to other recent indicators of resurging refinances. Optimal Blue reported a 300% leap in rate-and-term refinance locks in August from a year ago, with activity also more than doubling from July.

Lenders are responding to the spike in interest by offering more of such products as well, according to the MBA. Mortgage credit availability hit a 10-month high in August, driven, in part, by lenders offering more cash-out refi options, the association said. 

"However, there is still somewhat limited refinance potential as many borrowers still have sub-5% rates," Kan said. "It is a positive development that there are homeowners who can benefit from a refinance as rates continue to move lower."

Refinances also nabbed a 46.7% share in total application volume last week, according to MBA's weekly survey. The number inched up from 46.4% one week earlier, but in a sign of how rates have changed recent market activity, the refi share accelerated from 29.1% during Labor Day week 2023. 

The seasonally adjusted Purchase Index, likewise, saw a 1.8% rise week over week. While declining rates have provided a noticeable boost in refinances compared to 12 months ago, mortgage applications for home buying have lagged. The index was down 3.5% from last year, but it is coming closer to where it was for the comparative period, Kan said.

"Despite the drop in rates, affordability challenges and other factors such as limited inventory might still be hindering purchase decisions," he stated.

Minimal movement occurred in federal mortgage lending, with the Government Index edging up a seasonally adjusted 0.2%. Shares of applications guaranteed by government agencies also remained near where they were the prior week.

Federal Housing Administration-sponsored loans garnered 14.7% of all applications, up from 14.6%, while Department of Veterans Affairs-backed mortgages made up a 16.4% share of the weekly total, falling from 16.7%. Mortgages guaranteed by the U.S. Department of Agriculture remained at 0.4% week over week. 

The 30-year contract fixed rate for jumbo mortgages with balances above conforming limits averaged 6.56%. The rate fell from 6.73% in the previous survey. Borrowers used 0.33 worth of points on average to buy down the rate compared to 0.35 seven days earlier. 

The mean 30-year FHA-backed rate came in 6 basis points lower to land at 6.24% from 6.3%. Points decreased to 0.76 from 0.8 for 80% LTV-ratio loans.

The 15-year contract mortgage posted an average fixed rate of 5.71%, tumbling 27 basis points from 5.98 one week prior. Average points taken to further lower the rate grew to 0.73 from 0.64.

The average 5/1 adjustable-rate mortgage, which begins with a fixed 60-month term, also finished under the 6% mark, dropping 13 basis points to 5.85% from 5.98%. Points contracted significantly week over week to 0.29 from 0.76. 

Meanwhile, ARMs with terms of any length, took a 5.4% share relative to total activity, slipping from 5.5% the prior week.