Mortgage Applications Rise in Face of Industry Woes

U.S. home mortgage applications rose for the second straight week, driven by growing demand for both refinancing and home purchase loans.

But is that the whole story?

The Mortgage Bankers Association’s seasonally adjusted mortgage application index rose 3.4 percent in the week ended August 10 to 678.7.

That’s its highest level since the middle of May.

Yet rise of mortgage applications seems to fly straight in the face of a spate of reports pointing to a crisis of confidence in the industry.

“Upheaval on the industry may be temporarily increasing the level of application activity at the large lenders that participate in the MBA mortgage survey rather than representing a system-wide increase,” Doug Duncan, the MBA’s chief economist, said.

Indeed, potential borrowers may be filing out multiple mortgage applications as more loans get rejected, distorting the total applications figures, some say.

Rapidly rising defaults and foreclosures that emanated from the bad credit mortgage market have been seeping into higher-quality home loans.

Dozens of mortgage lender troubles have been reported, while many have shut their doors and almost all have tightened lending standards.

Foreclosures and late payments on loans serviced by Countrywide Mortgage, the largest U.S. lender, rose in July to their highest in at least five years.

The mortgage company said this week it has made 14 percent fewer home loans last month than in June after tightening lending standards.

Borrowing costs rose across the board last week, with 30-year mortgage rates up 0.04 percent to 6.45 percent. These loans were slightly less expensive compared with the year-ago rate of 6.54 percent.

One-year adjustable-rate mortgage rates increased to 5.81 percent from 5.69 percent.

On the mortgage refinancing side, borrowers continue to make the best out of the currently low loan rates - especially homeowners with adjustable-rate mortgages opting to switch into less risky, fixed-rate mortgages.

The purchase index rose 3.9 percent to 464.9 for the week ending August 10. The refinancing gauge climbed 2.6 percent to 1,929.6 in the same week.

The overall mortgage application index and the data provided includes the purchase and mortgage refinance subcomponent indexes.

The MBA says its mortgage application and refinancing survey covers about 50 percent of all U.S. retail residential mortgage originations.

SOURCE: Reuters