The Mortgage Banking Association announced that mortgage applications dropped 7% week over week for the week ended June 22nd in their weekly survey, which covers more than 75% of all U.S. retail residential mortgage applications. Refinance itself had dropped 8% from the previous week, while purchase inquiries fell 1% from the week previous on a seasonally adjusted basis.
Mortgage rates are still extremely low, but the market overall saw a dip downward in a natural response to an influx of application volume last week from the new FHA streamline refinance mortgage insurance requirements – requirements that markedly lowered mortgage insurance for homeowners that had FHA-backed mortgages endorsed by the FHA before June 1st, 2009.
This new guideline allowed homeowners backed by the FHA before June 1st, 2009 to pay an upfront mortgage premium at close equal to only 0.01 percent of the loan size (otherwise known as 1 basis point). This would mean only a $10 upfront mortgage premium (MIP) to be paid by the homeowner at closing.
Compare this to refinancing for FHA-backed loans endorsed on or after June 1st, 2009, where mortgage premium at close is 175 basis points, or 1.75% of the loan size. For a loan of $100,000, the homeowner with an FHA mortgage before June 2009 would pay only $10 for their mortgage insurance premiums, while the homeowner with the FHA mortgage afterwards would pay $1750!
New FHA Streamline Guidelines Cause a Mortgage Application Roller Coaster
It’s no surprise, then, that the announcement of these new FHA Streamline Refinance market created a large mortgage application influx in the market when it came into effect on June 11th, 2012.
“Refinance volume fell last week due largely to a fall-off in refinance applications for government loans, which had more than doubled the prior week. The large swings in activity were due to the implementation of FHA’s new premiums on streamline refinances, and borrowers timing their applications to lower their premiums.”
— Michael Fratantoni, MBA’s Vice President of Research and Economics
This reality can be seen in the data, as the proportion of refinance mortgage applications, previously at 80% of total, dropped to 79% week over week. Overall mortgage rates were pretty much static for the week, which didn’t help refinance or purchase rates improve in volume.
On the purchase side, the volume drop of 1.4% reflects that the real estate market is not yet booming back, as the purchase volume is a leading indicator of home sales nationally. The original expectations by the MBA for the purchase market to rebound starting at the end of 2012 and into the 2013 have since been changed to less optimistic tones, as the future state of the purchase market still seems in flux.
Making a Decision on Your Mortgage
Given what you know about the mortgage market, the takeaways from the recent fluctuations for your loan should be fairly clear. If you have a FHA mortgage loan backed before June 1st, 2009, enjoy the lower closing costs you will now face. If you aren’t so lucky, the market is overall well-conditioned for a refinance of your loan if you haven’t already been taking advantage of the low mortgage rates.
On the purchase side, things are still unknown. Looking at a new home from a real estate investment is still possible, but the risk condition is still there with no clear, immediate signs of recovery. Do your research and act accordingly for the best future health of your mortgage.