Borrowers looking to refinance were quick to take advantage of a slight drop in interest rates last week.  The Mortgage Bankers Association (MBA) said its Market Composite Index, a measure of mortgage loan application volume, jumped 8.1 percent on a seasonally adjusted basis during the week ended January 29, and was up 10 percent on an unadjusted basis.  The index had declined in each of the two previous weeks.

The Refinance Index increased 11 percent from the previous week, also reversing two weeks of losses, and was 60 percent higher than the same week one year ago. The refinance share of mortgage activity increased to 71.4 percent of total applications from 70.7 percent the previous week.

The seasonally adjusted Purchase Index ticked up 0.1 percent and was 8 percent higher on an unadjusted basis. The index was 16 percent above its level the same week in 2020.  

 

Refi Index vs 30yr Fixed

 

Purchase Index vs 30yr Fixed

 

 

"After increasing for three consecutive weeks, the 30-year fixed mortgage rate dropped 3 basis points to 2.92 percent. The one-week reversal in the recent upswing in rates drove an increase in both conventional and government refinance activity, as borrowers continue to lock in these historically low rates. MBA's refinance index hit its highest level since March 2020 and jumped 60 percent year-over-year," said Joel Kan, MBA's Associate Vice President of Economic and Industry Forecasting. "Purchase activity was unchanged last week, with a 1 percent increase in conventional applications offset by a 3 percent decline in government applications. Average purchase loan amounts in early 2021 continue to rise across all loan types, driven by a strong pace of home sales, tight housing inventory and high home price growth. Conventional, FHA and VA purchase loan sizes all set new survey records last week."

The FHA share of total applications decreased to 9.1 percent from 9.4 percent the prior week prior and the VA share dipped to 12.1 percent from 12.4 percent. The USDA share of total applications decreased to 0.4 percent from 0.5 percent. The average balance of a mortgage was $332,100 compared to $329,700 a week earlier while the average balance of a purchase mortgage increased $400 to $398,600.  

While the conforming 30-year mortgage caught a rate decrease last week, other rates were mixed. The average contract interest rate for 30-year loans with origination balances at or below the conforming limit of $548,250 decreased to 2.92 percent from 2.95 percent, with points remaining at 0.32. The effective rate decreased to 3.01 percent.   

The average contract interest rate for jumbo 30-year fixed rate mortgages (FRM), loans with balances greater than the conforming limit, decreased to 3.12 percent from 3.17 percent, with points increasing to 0.32 from 0.31. The effective rate was 3.22 percent. 

Thirty-year FRM backed by the FHA saw a 6-basis point increase to 2.94 percent. Points decreased to 0.29 from 0.34 and the effective rate rose to 3.03 percent.  

The average contract interest rate for 15-year FRM was 2.44 percent with 0.32 point. The prior week the rate was 2.43 percent, also with 0.32 point. The effective rate increased to 2.53 percent.  

The average contract interest rate for 5/1 adjustable-rate mortgages (ARMs) rose to 2.88 percent from 2.60 percent, with points increasing to 0.46 from 0.38. The effective rate increased to 3.05 percent. The ARM share of activity was unchanged at 2.2 percent of total applications.

MBA's Weekly Mortgage Applications Survey has been conducted since 1990 and covers over 75 percent of all U.S. retail residential applications Respondents include mortgage bankers, commercial banks, and thrifts. Base period and value for all indexes is March 16, 1990=100 and interest rate information is based on loans with an 80 percent loan-to-value ratio and points that include the origination fee.

The number of loans in active forbearance plans was unchanged from the previous week according to MBA's latest Forbearance and Call Volume Survey. As of January 24, there were 2.7 million mortgages in forbearance, 5.38 percent of all mortgage loans.  By stage, 18.07 percent are in the initial forbearance plan stage, while 79.30 percent are in an extension. The remaining 2.64 percent were program reentries.   

The share of Fannie Mae and Freddie Mac loans in forbearance decreased to 3.10 percent - a 1-basis-point improvement. Ginnie Mae (FHA and VA) loans in forbearance decreased 10 basis points to 7.51 percent, while the forbearance share for portfolio loans and private-label securities (PLS) increased by 22 basis points to 9.16 percent. The percentage of loans in forbearance for independent mortgage bank (IMB) servicers dipped 2 basis points to 5.77 percent, and the percentage of loans in forbearance for depository servicers grew by 1 basis point to 5.37 percent.

"The share of loans in forbearance was unchanged in the prior week, with a gain in the portfolio/PLS loan segment offset by declines in the Ginnie Mae and GSE investor loan categories. When servicers buy out delinquent loans from Ginnie Mae pools, they are reclassified as portfolio loans, which can lead to a decrease in the Ginnie Mae forbearance share and an increase in the portfolio/PLS share," said Mike Fratantoni, MBA's Senior Vice President and Chief Economist. "While new forbearance requests dropped slightly, the rate of exits from forbearance was at the slowest pace since MBA began tracking exit data last summer." 

Fratantoni added, "Overall, the forbearance numbers have been little changed over the past few months. Homeowners still in forbearance are likely facing ongoing challenges with lost jobs, lost income, and other impacts from the pandemic."

MBA's latest Forbearance and Call Volume Survey covers the period from January 18 through January 24, 2021 and represents 74 percent of the first-mortgage servicing market (37.1 million loans).