2002 refi production expected to drop 54% from last year
By SAM GARCIA
1/25/2002

Applications for refinance mortgages increased by more than forty percent from last week, according to the market composite index of mortgage loan applications by the Mortgage Bankers Association of America (MBA). The surge appears to be the result in a brief dip rates last week, when Freddie Mac reported that the average 30-year fixed rate mortgage (FRM) fell below seven percent for the first time in six weeks.

MBA's survey of mortgage bankers, commercial banks and thrifts indicated that overall applications were up 24%.

At a press briefing yesterday, MBA said it expects refinances to fall from $1.14 trillion in 2001 to about $0.52 trillion this year.

In its weekly Primary Mortgage Market Survey, Freddie Mac said the average thirty-year FRM was 6.96%, thirteen basis points (BPS) higher than last week. The average fifteen-year FRM was reported at 6.44%, also up 13 BPS.

Fixed rates were highest in the North Central region, where the average 30-year was 7.03 percent and the average 15-year was 6.49 percent. States located in the North Central include OH, IN, IL, MI, WI, MN, IA, ND and SD.

The average adjustable rate mortgage (ARM) edged up by 2 BPS to 5.10%. While the difference between the ARM and the 30-year FRM widened to 1.86 percent from 1.75 percent last week, MBA reported that ARM activity fell to 14.6% of total applications from 15.6% last week.

A year ago, the average ARM was at 6.64 percent, barely less that the average 15- year FRM, which was 6.70 percent.

Don't look for direction this week from the the more than 100 mortgage bankers, mortgage brokers and other industry experts surveyed by Bankrate.com. About 1/3 think that rates will rise, while approximately 1/3 see rates falling and another 1/3 don't see a change.

Freddie Mac's chief economist Frank Nothaft doesn't anticipate any sharp rise in mortgage rates in the coming months. "Our forecast is for rates to hover around 7 percent to 7¼ percent in the new year as the economy heads into recovery."
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Comments by Alan Greenspan this week are unlikely to provide support for any lower rates; the Wall Street Journal reported that in testimony before the Senate Budget Committee, the Federal Reserve Chairman sounded more upbeat about the U.S. economy than he did just two weeks ago, lowering the odds for more interest-rate cuts. According to the story, he eliminated pivotal sections from his earlier speech that were widely cited at the time as evidence that he remained quite bearish about recovery prospects. A Merrill Lynch & Co. economist was quoted in the story as telling his clients, "we believe the Fed will not ease next week."

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