By Kevin Chiu
Homeowners applying to refinance mortgages dropped for the second week in a row, despite interest rates falling to the lowest level of the year, according to the Mortgage Bankers Association. The drop, however, in refinancing applications was buffered by a slight increase in new home purchases.
The seasonally adjusted purchase index rose nearly 1% for the week ending August 26 th as the bankers’ market composite index fell by 9.6% on growing uncertainty over the direction of the U.S. economy.
The Obama administration is considering a new program for underwater homeowners unable to refinance their mortgages, which would ignore loan to value levels in order to allow upside down homeowners to refinance mortgages and boost mortgage loan activity.
Refinancing activity, which had exceeded lenders’ expectations saw a drop of 12.2% from the previous week, but still made up the over-whelming majority of mortgage loan activity, composing 77.8% of total applications, according to the survey.
“Refinance application volume declined for a second week from recent highs, despite rates staying near a 10-month low, while purchase volume remained near 15-year lows,” said MBA economist Mike Fratantoni. The drop in refinances wasn’t however, unexpected since homeowners have been refinancing their home loans for more than three years at some of the lowest rates in a generation.
The average mortgage rate on a fully executed 30-year fixed-rate loan decreased to 4.32% from 4.39% on an 80% loan-to-value mortgage. The 15-year fixed rate mortgage dropped to 3.49% from 3.56% for the week.
Financial analysts are uncertain whether rates will drop from their present levels after hitting new record lows two weeks ago, but growing uncertainty over the nation’s economy and high unemployment could trigger additional drops as bankers attempt to drive more business to their door steps.