By Joe Light And AnnaMaria Andriotis
The moribund mortgage market suddenly sprang back to life last
week after a drop in interest rates to levels not seen in almost
two years sent borrowers rushing to lock in cheaper loans.
Mortgage applications rose a seasonally adjusted 49% in the week
ended Jan. 9 from the previous week and 30% from a year ago,
according to data from the Mortgage Bankers Association.
Application volume touched its highest level since August 2013,
with most of the increase driven by borrowers seeking to
refinance.
The real test for the market will come in the next few weeks. If
mortgage rates continue to fall, refinancings could pick up,
breathing more life into the mortgage market. It is unclear,
however, whether the uptick will prove the beginning of a lasting
trend. Mortgage-application estimates can be volatile around
holiday weeks, making them less reliable as an indicator of an
underlying trend.
Some brokers and lenders say there has been a perceptible
increase in activity in the past few weeks as borrowers try to take
advantage of the unexpected drop in interest rates. On Wednesday,
the yield of the 30-year Treasury bond fell to a record, while
10-year Treasury yields declined to their lowest level since May
2013, as weak U.S. consumer spending added to global economic
worries.
In the week ended last Thursday, the average rate on a 30-year
fixed-rate mortgage was 3.73%, its lowest since May 2013, according
to Freddie Mac.
Refinancing could be bolstered further by an Obama
administration decision last week to cut the fees charged by a
federal loan program popular among first-time home buyers. The U.S.
Department of Housing and Urban Development estimates that 100,000
to 200,000 borrowers could refinance loans guaranteed by the
program this year.
Adam Spuler, a 36-year-old owner of a roofing and remodeling
company, bought his home in Lutz, Fla., about 18 months ago using a
30-year fixed-rate mortgage of roughly $315,000 at a 5.25% interest
rate.
Mr. Spuler said he applied to refinance his mortgage on Saturday
with Wyndham Capital Mortgage Inc., which is offering him a 30-year
fixed-rate loan at 4.375%. He said the rate he is currently paying
is higher than what he would have otherwise been able to get
because he made only a 10% down payment for the home. He is
expecting his appraisal to show that the home's value has gone up
enough to give him a 20% equity stake in the property, which would
qualify him for this lower rate.
"I'm not going to put more cash down, but the homes in my area
have appreciated," he said.
Last week's increase still leaves weekly volume 52% shy of its
recent peak in 2012.
Between 2009 and mid-2013, refinance applications surged,
bolstering banks' mortgage businesses even as home-purchase lending
activity dried up. In 2012, lenders refinanced $1.456 trillion of
mortgages, accounting for 71% of the total dollar amount of
mortgage originations, according to the MBA.
But after Federal Reserve officials hinted in May 2013 that the
end of their bond-buying economic-stimulus program would come soon,
interest rates shot up and refinancings cratered, accounting for
just 42% of mortgage volume during the first three quarters of
2014, according to the MBA, the latest data available.
The pool of borrowers who would benefit from a refinancing has
shrunk with each new period of low rates. Now, more than two-thirds
of fixed-rate mortgages that are government backed have an interest
rate of 4.5% or below, according to an MBA analysis of data on the
mortgage market from J.P. Morgan Chase & Co. and Deutsche Bank
AG.
That, in turn, has made lenders increasingly reliant on home
purchases to drive their mortgage businesses, and lately, the
housing market has looked sluggish, said Doug Duncan, chief
economist for mortgage-finance company Fannie Mae.
"We have to see strong and sustained income growth before we're
going to see housing make a significant move upward," Mr. Duncan
said. A Fannie Mae survey in December found that only 64% of
consumers thought it was a good time to buy a home, tying an
all-time low for the survey, which was started in 2010.
J.P. Morgan and Wells Fargo & Co. on Wednesday delivered
mixed news on mortgage originations in their fourth-quarter
results.
J.P. Morgan, the largest U.S. bank by assets, said originations,
while down 1% from a year ago, rose 8% from the third quarter,
although the end of the year is typically a slow period. Last year,
the bank reduced its mortgage-banking head count by more than 7,500
employees.
Originations at Wells Fargo, the fourth-largest U.S. bank by
assets, fell from the previous quarter, although the bank said the
decline in rates could drive more mortgages in the first part of
the year.
"If rates stay low or are favorable, surely we could see more
activity," said Wells Fargo Chairman and Chief Executive John
Stumpf during an earnings call.
Smaller lenders also say they are seeing more activity.
A spokeswoman for Navy Federal Credit Union, the largest U.S.
credit union by assets, said it has received $267 million in
refinance applications this month through Tuesday, versus $293
million in refinance applications received for the entire month of
January 2014.
Stephen Thorne, a branch manager with River Community Bank NA in
Raleigh, N.C., said his office in the past few days has made about
100 calls to potential clients who could save money by refinancing.
Mr. Thorne said he believes "this refinance window will be short
lived."
Adam Lowry, a 35-year-old physician in Washington, D.C., bought
his house in April 2014, taking out a 30-year fixed-rate mortgage
with a 4.125% rate on which he owes almost $590,000. He said he
contacted several lenders this week and has been told he can get
rates ranging from 3.675% to 4% on the same loan. He said he is
planning to keep the home for a long time and will likely rent it
out when he moves. "I'm thinking long term, so I'm trying to get
the lowest rate I can on a 30-year fixed for the potential benefits
of having [the home] as an investment," said Mr. Lowry.
Write to Joe Light at joe.light@wsj.com and AnnaMaria Andriotis
at AnnaMaria.Andriotis@wsj.com
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