Record Low Mortgage Rates Drive Refinances

By Mike Colpitts

Refinances jumped 13% in the last week to trigger a major jump in mortgage refinancing as consumers took advantage of record low young family mortgage rates, according to the Mortgage Bankers Association.

The drop in rates, however, seemed to do little to get more home purchasers off the fence to take out applications for home loans as the purchase index declined a modest 2.4% from the previous week. However, the four week moving average for home purchase mortgage applications is still in positive territory.

“A flare up of the sovereign debt troubles in Europe once again led investors to flee to the safety of US Treasury securities last week,” said MBA chief economist Michael Fratantoni. “As a result, mortgage rates have reached new lows in our survey, and refinancing application volumes picked up substantially as a result.”

Freddie Mac said the fixed 30-year mortgage dropped to an average of 3.84% last week, the lowest the benchmark mortgage has ever been.

The average fully executed interest rate on the same 30-year loan signed by mortgage borrowers with conforming loan balances ($417,500 or less) decreased to 3.96%, according to the Mortgage Bankers survey. It is also the lowest rate in the history of the survey, from 4.01 percent, with points decreasing to 0.37 from 0.41 (including the origination fee) for 80% loan-to-value ratio loans.

The large volume of refinances was not due to the government’s Home Affordable Refinance Program. The increase in refinance activity last week was concentrated in the conventional sector, which was higher by 14% for the week, while government refinance applications were up just 4%.

The average rate on 30-year fixed loans backed by FHA fell to 3.75%, the lowest in the history of the survey, from 3.81% a week earlier.

The rate on 15-year fixed mortgages dropped to 3.26%, also the lowest in the history of the survey from 3.29% a week earlier. The average mortgage rate on 5/1 adjustable-rate mortgages decreased to 2.80%, a three basis point drop for the period.