Mortgage applications nosedive as rates continue to soar

Adjustable rate mortgages saw a surge up to 8.5% of total applications last week

With rates at the highest level in a decade, mortgage applications for the week ending April 15 fell 5%, according to the latest survey by the Mortgage Bankers Association.

The drop was largely driven by an 8% decline in refinancing applications, which was 68% lower than the same week one year ago. The seasonally adjusted purchase index dropped 3% from the week prior, according to the trade group. Purchase mortgage applications were down 14% from the same week a year ago.

“Ongoing concerns about rapid inflation and tighter U.S. monetary policy continued to push Treasury yields higher, driving mortgage rates to their highest level in over a decade. Rates increased across the board  for all loan types, with the 30-year fixed rate hitting 5.2%, the highest level since 2010,” said Joel Kan, the MBA’s associate vice president of economic and industry forecasting.

The dramatic uptick in mortgage rates – now 2 percentage points higher than they were a year ago – has effectively eliminated rate-term refinances. Home buyers have also seen their purchasing power erode, all while home prices keep rising.

“Home purchase activity has been volatile in recent weeks and has yet to see the typical pick up for this time of the year,” said Kan.

As a result, other types of mortgage products are seeing renewed interest. Adjustable-rate mortgages, which were all but cast aside during the low-rate years of 2020 and 2021, saw a surge up to 8.5% of total applications last week. That’s the highest level since 2019, the MBA noted.  

Why lenders should think about non-QM now, not later

Agency rates are on the rise and refinance volume is down. Originators who had their best year in 2021 will have to utilize something else to make up for this loss in 2022 and non-QM can be the answer. 

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“As ARM loans typically have lower rates than fixed rate mortgages, and as this spread has widened, ARM loans have become more attractive to borrowers already facing home purchase loan amounts close to record highs,” Kan added in a statement.  

The refinance share of mortgage activity decreased to 35.7% of total applications from 37.1%  the previous week. The FHA share of total applications increased to 9.9% from 9.5% the week prior. The VA share of total applications also increased, to 10.1%, up from 9.9% the week prior.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances increased to 5.20% from 5.13%, with points increasing slightly to 0.66 from 0.63. The average interest rate on 30-year fixed-rate jumbo mortgages jumped 8 basis points to 4.76%, with points increasing to 0.46 from 0.37 a week prior, the MBA reported.

As of Monday, rates on 30-year-fixed mortgages averaged 5.27% on Black Knight‘s Optimal Blue OBMMI pricing engine.

The MBA last week lowered its forecast for both refinance and purchase originations this year. The trade group now forecasts purchase originations to rise 4.6% to $1.72 trillion in 2022, followed by gains of 3% in 2023 and 4% in 2024. Refinances are expected to fall 64% to $841 billion in 2022, followed by a 20% drop in 2023.

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