Mortgage Rates Plummet, Applications Surge

The financial turmoil leading up to and surrounding the U.S. credit rating downgrade has pushed interest rates to record lows for the year and fueled a record surge in mortgage applications.

“Amid substantial market turmoil last week, mortgage rates dropped to their lowest levels of the year, and refinance rates jumped more than 30 percent to their highest levels of the year,” said Mike Fratantoni, vice president of research and economics for the Mortgage Banker Association.

Mortgage applications increased more than 21 percent in the week ending August 5, the association reported today. Applications to refinance existing mortgages rose more than 30 percent, while applications to refinance jumbo loans jumped 75 percent. The increased activity in jumbo loans – mortgages between $417,000 and $729,000 – partly reflects a move to refinance the large debt load before a cap of $625,500 goes into effect for jumbo conforming loans on September 30^th.  The cap applies to government-insured mortgages issued through mortgage giants Fannie Mae and Freddie Mac.

The refinance share of mortgage activity increased to nearly 76 percent of total applications from 70.1 percent the previous week, while the percentage of adjustable-rate mortgages fell from 6.6 percent to 6.1 percent of total applications.

Rates continue to fall as investors move from equities to the safe haven of U.S. Treasuries, driving up prices and lowering yields. Bankrate.com reported an overnight average interest rate of 4.33 for a 30-year fixed loan and 3.49 for a 15-year fixed loan. According to the Mortgage Bankers Association, by last Friday the average interest rate for a 30-year fixed rate mortgage dropped to 4.37 percent from 4.45 percent, with points increasing from .78 to 1.07 for mortgages requiring a 20 percent down payment.

Mortgage applications rose at a more moderate 7.1 percent in the week ending July 29^th, even though 30-year mortgage rates fell below 4.5 percent, Fratantoni said, explaining that for July “factors such as negative equity and a weak job market” constrained borrowers.

The financial quarter ending June 30^th had seen a more than doubling of loan originations for commercial and multifamily mortgages from the same period last year, the association reported.

“Commercial/multifamily mortgage borrowing and lending continues to rise from the depths of 2009 and 2010,” said Jamie Woodwell, the association’s vice president of commercial real estate research.