Government Loans Rise on Low Mortgage Rates

By Mike Colpitts

Refinances slowed but applications for government-backed mortgages jumped this past week after gaining the largest number of new government backed loans mortgages in months, according to the Mortgage Bankers Association. The survey accounts for 75% of all U.S. mortgage applications applied for during the week.

Mortgage applications fell a combined 4.3% from a week ago as the seasonally adjusted refinance index dropped 5.2% to lead the slowdown. Home purchase mortgage applications were down by a slimmer margin, 0.8%. Refinancing made up 79.1% of loan application activity.

The slight drop in conventional mortgage originations for home purchases was due to a strong move towards lower government backed mortgage financing. Borrowers are able to qualify for home mortgages with lower down payments for FHA loans than conventional mortgages. The government share of purchase applications rose to 41.6% last week.

“Interest rates continued to fall last week, driven by the latest Federal Reserve actions to invest in longer-term Treasury and mortgage securities, but potential borrowers largely remained on the sidelines, seemingly unimpressed by the lowest -by any measure- mortgage rates since the 1940s,” said bankers’ economist Mike Fratantoni.

saving for a down payment

“Refinance application volume declined and purchase volume was little changed. Purchase borrowers continue to value the government lending programs that permit lower down payments.”

Homeowners refinancing mortgages also saw a jump into fixed 15-year mortgages, with 27% of refinances accounting for the shorter term fixed rate last week. Bankers reported that in August, among refinance borrowers 50.7% were for fixed rate 30-year loans, and 31% for 15-year fixed loans.

The 15-year refinance share was at its highest level since bankers started taking their survey. Almost all or 90.1% of home purchase applications were for fixed rate 30-year loans during the month.

Executed contract mortgage rates for 30-year fixed-rate loans dropped to 4.18% on average from 4.24% for 80% loan-to-value ratio mortgages. The average interest rate for 15-year fixed-rate mortgages increased to 3.49% from 3.46% on the same 80% loan to value mortgage.