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Mortgage applications drop in wake of Fed's taper

Purchase, refi volume both take a hit

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Mortgage applications dropped across the board last week, according to new data released Tuesday morning by the Mortgage Bankers Association.

Total applications fell 6.3 percent on a seasonally-adjusted basis according to the MBA's index of mortgage activity, marking the second straight week of languishing mortgage demand from consumers.

Both refinancing and purchase applications saw volumes fall in the wake of an announcement by the Federal Reserve that it would begin tapering its asset purchases by $10 billion per week, with $5 billion of that amount coming in the form of agency mortgage-backed securities.

Refinancing activity fell 8 percent, the MBA said, while purchase mortgage activity dropped 4 percent. Purchase mortgage applications in the week leading up to Christmas were off 11 percent versus one year ago.

“Following the Federal Reserve’s taper announcement, mortgage application volume dropped again last week, with rates increasing and refinance application volume falling to its lowest level since November 2008,” said Mike Fratantoni, MBA’s vice president of research and economics. 

“Purchase application volume was weak too, continuing to run more than ten percent below last year’s pace.  Notably, government purchase application volume is almost 25 percent below where it was at this time last year, with the larger drop compared to conventional purchase likely due to the increase in FHA premiums over the course of the year.” 

Refinance applications represented 65 percent of all loan application activity, the MBA said, roughly in-line with the previous week's mix.

With mortgage rates rising, the MBA also noted that applications for adjustable-rate mortgages jumped to 8.3 percent of all application activity -- marking the highest such level of ARM demand since July 2008.

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