Refinance Activity Has Potential To Remain Strong

February 6, 2002

Mortgage Loan Applications Up In Latest MBA Survey

WASHINGTON, D.C. (January 30)The market composite index of mortgage loan applications-a measure of loan purchases and refinances-for the week ending February 1 increased 5.3 percent to 567.3 on a seasonally adjusted basis from 538.9 the previous week, according to the Weekly Mortgage Applications Survey of the Mortgage Bankers Association of America (MBA), which was released today. On an unadjusted basis, the application index increased 20.8 percent and was down 13.1 percent compared to the same week a year earlier.

The MBA seasonally adjusted Purchase Index increased to 340.9 from 328.5 the previous week. The seasonally adjusted refinance Index increased to 1884.2 from 1762.9 the previous week. Other seasonally adjusted index activity included the Conventional Index, which increased to 748.9 from 713.8 the previous week, and the Government Index, which increased to 264.2 from 247.1 the previous week.

Somewhat lower interest rates on long-term government bonds during the week helped push down mortgage rates. This in turn helped the refinance boom that started in early 2001 to continue. Phil Colling, an economist with MBA, stated, "There is currently about $5.7 trillion in home mortgage debt outstanding. According to MBA estimates, there were just over $2 trillion in home mortgage originations in 2001 and $1.5 trillion in originations in 1998, which were years with low mortgage rates. If $1.2 trillion of the originations made in 1998 are still on the books, then there are currently about $3.2 trillion in originations outstanding that were made in those years. That leaves about $2.5 trillion outstanding made in other years, and much of that mortgage debt may have been made at relatively high rates. Therefore, the refinance boom has the potential to continue as long as mortgage rates remain low."

Refinancing activity represented 49.4 percent of total applications, decreasing from 50.3 percent the previous week. The share of ARM activity decreased to 15.5 percent from 16.3 percent the previous week.

The average contract interest rate for30-year fixed rate mortgages was 6.85 percent, decreasing from 7.04 percent the previous week, with points remaining unchanged from the previous week at 1.31 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans.

The average contract interest rate for15-year fixed rate mortgages was 6.31 percent, decreasing from 6.49 percent the previous week, with points decreasing to 1.24 from 1.31 the previous week (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans.

The average contract interest rate for1-year ARMs was 5.18 percent, decreasing from 5.29 percent the previous week, with points decreasing slightly to 1.07 from 1.09 the previous week (including the origination fee) for 80 percent LTV loans.

Source: Mortgge Bankers Association

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