MBA revises prior week\'s survey to reflect midweek Christmas
By SAM GARCIA
1/11/2002

Mortgage loan applications jumped thirty percent from last week, according to the Mortgage Bankers Association of America's (MBA) Weekly Mortgage Applications Survey. MBA said that after reviewing previous years when Christmas and New Years occurred midweek, its survey of real estate finance companies was revised for last week to reflect a two-day holiday effect instead of a one-day effect. As a result, all of last week's application numbers were revised upward.

MBA said purchase applications were 28 percent higher than last week. Frank Nothaft, Freddie Mac's chief economist, said that MBA's "most recent report on mortgage applications showed the number of applications for home purchases to be at an all-time high, suggesting strong home sales for the next few months."

MBA reported that refinance applications -- which represented half of all applications -- were up 32.6 percent from the prior week.

Fueling the jump in applications were falling rates; Freddie Mac reported in its weekly Primary Mortgage Market Survey that the average 30-year fixed rate mortgage (FRM) fell eight basis points (BPS) from last week to 7.06%. Fixed rates were lowest in the Southeast, where the average 30-year was reported at 7.02 percent. States located in the Southeast region include NC, SC, TN, KY, GA, AL, FL and MS.

"Feeling more comfortable about the upcoming economic rebound, the financial markets relaxed a bit this week," said Freddie's Nothaft. "With the market more settled this week, interest rates on fixed-rate mortgages eased this to the lowest rate in five weeks."

Freddie said the average 15-year FRM fell seven BPS to 6.55 percent. Freddie says its survey of 125 thrifts, commercial banks and mortgage lending companies is roughly proportional to the level of mortgage business that each type commands nationwide.

"Rates should remain largely unchanged from one week ago," said Greg McBride, a financial analyst at Bankrate.com. "However, with much more economic data on the calendar for next week, a return to volatility and rising rates may soon be in store."

Bankrate.com said that forty percent of the 100 mortgage bankers, mortgage brokers and other industry experts it surveyed believe rates will fall, while 20% see rates rising and 40% don't see a change of more than 2 BPS during the next 35 to 45 days.

The interactive edition of the Wall Street Journal (WSJ) recently reported that Federal Reserve officials appear to be less optimistic about economic recovery than many private analysts, suggesting interest rates could remain low for a while or even fall again. "I think there's a good chance that the economy may be at least a little softer than the consensus over the next year or so," Richmond Fed President Alfred Broaddus was quoted as saying. WSJ quoted Atlanta Fed President Jack Guynn as saying that the economy would probably contract "for another quarter or two."

Banc of America Securities' Kurt Harrison noted, "U.S. Treasuries continued their powerful uptrade on Thursday, ignoring a healthy drop in jobless claims and $7 billion of FHLMC 10yr supply, and focusing instead on friendly comments from a series of Fed governors. Most of the Fed chatter has been cautious on the economy, and seems to indicate that rates still have room to fall further."

Freddie reported the average adjustable rate mortgage (ARM) at 5.26 percent, unchanged from the prior week. MBA said that ARM applications made up almost 15 percent of total applications.

In its 18th annual ARM survey, Freddie reported that during 2001, ARM's represented only 12% of the market, down from 23% in 2000. Freddie said that this is the first time in the 18-year history of the ARM survey that 1-year adjustables did not have an initial rate that was below the fully indexed rate.

"The average lender no longer offers a first-year discount from the fully indexed rate," said Freddie's Nothaft. "This has occurred, in part, because the one-year Treasury yield that serves as an index is so low that lenders need not offer a rate discount to create a sizable interest-rate savings for borrowers."

Freddie also found that while the share of 3/3 ARM's have fallen significantly, the 3/1 and 5/1 ARMs continued to be more popular among lenders.

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