Mortgage originations are still finding much of their strength in the refinance sector even during those weeks when rates increase. The Mortgage Bankers Association (MBA) said the volume of mortgage applications increased last week even as purchase mortgage volume declined. MBA's Market Composite Index, a measure of mortgage loan application volume, increased 1.2 percent on a seasonally adjusted basis during the week ended May 14 and rose 1.0 percent before adjustment.

The Refinance Index rose for the second straight week, increasing 4 percent although it was down 2 percent compared to the same week one year ago. The refinance share of mortgage activity increased to 63.3 percent of total applications from 61.3 percent during the week ended May 7.

Both the seasonally adjusted and the unadjusted Purchase Indices were down 4 percent from one week earlier. The unadjusted Index was 2 percent higher than the same week in 2020.  

 

Refi Index vs 30yr Fixed

 

Purchase Index vs 30yr Fixed

 

"Mortgage rates increased last week, with all loan types hitting their highest levels in two weeks. Rates were still lower than levels reported in late March and early April, providing additional opportunity for borrowers to refinance. Despite the 30-year fixed rate rising to 3.15 percent, applications for conventional and VA refinances increased. Ongoing volatility in refinance applications is likely if rates continue to oscillate around current levels," said Joel Kan, MBA's Associate Vice President of Economic and Industry Forecasting. "A decline in purchase applications was seen for both conventional and government loans. There continues to be strong demand for buying a home, but persistent supply shortages are constraining purchase activity, and building material shortages and higher costs are making it more difficult to increase supply. As a result, home prices and average purchase loan balances continue to rise, with the average purchase application reaching $411,400 - the highest since February."   

The FHA share of total applications decreased to 9.2 percent from 9.9 percent the prior week, the VA share increased to 12.0 percent from 11.7 percent and USDA applications accounted for 0.4 percent, down from 0.5 percent. The origination balance of all loans increased from $337.700 the prior week to $338,500 and purchase mortgage balances rose to $411,400 from $409,800.

The average contract interest rate for 30-year fixed-rate mortgages (FRM) with origination balances at or below the conforming limit of  $548,250 increased to 3.15 percent from 3.11 percent, with points increasing to 0.36 from 0.32. The effective rate rose to 3.26 percent.

The rate for jumbo 30-year FRM, loans with balances higher than the conforming limit, increased to 3.31 percent from 3.27 percent. Points declined to 0.27 from 0.34 and the effective rate grew 3.39 percent.  

Thirty-year FRM with FHA guarantees had an average rate of 3.13 percent, a 6 basis point increase from the previous week. Points dipped to 0.30 from 0.34 and the effective rate was 3.22 percent.

The rate for 15-year FRM was 2.54 percent with 0.32 point. The prior week it was 2.49 percent with 0.29 point. The effective rate increased to 2.62 percent.

The average contract interest rate for 5/1 adjustable rate mortgages (ARMs) was 2.58 percent, up from 2.57 percent. Points grew to 0.25 from 0.22 and the effective rate moved to 2.67 percent. The ARM share of mortgage applications increased from 3.08 percent the prior week to 3.9 percent.

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 forbearance programs decreased by 14 basis points in MBA's latest Forbearance and Call Volume Survey to 4.22 percent of loans in servicer portfolios. As of May 9, 2021 MBA estimates 2.1 million homeowners remained in forbearance plans. By stage, 11.9 percent of those loans are in the initial forbearance plan stage, 83.0 percent are in an extension. The remaining 5.1 percent are program re-entries.

The share of Fannie Mae and Freddie Mac loans in forbearance decreased 8 basis points to 2.24 percent and Gennie Mae (FHA and VA) loans declined 21 basis points to 5.61 percent. The forborne share of portfolio loans and private-label securities (PLS) decreased by 29 basis points to 8.26 percent. Loans serviced by independent mortgage bank (IMB) servicers had a 4.42 percent share in forbearance, down 16 basis points week-over-week and the percentage of loans in depository servicers' portfolios declined 12 basis points to 4.35 percent.

"More homeowners exited forbearance in the first full week of May, leading to a 14-basis-point decrease in the forbearance share - the 11th straight week of declines. The rate of new requests dropped to 4 basis points, which is the lowest level since last March," said Mike Fratantoni, MBA's Senior Vice President and Chief Economist. "Of those in forbearance extensions, more than half have been in forbearance for more than 12 months."

Added Fratantoni, "The opening of the economy, as the successful vaccination effort continues, should lead to further reductions in the forbearance share. However, many homeowners continue to struggle. Borrowers who are reaching the end of their forbearance term should reach out to their servicer to review their options."

MBA's latest Forbearance and Call Volume Survey covers the period from May 3 through May 9, 2021 and represents 74 percent of the first-mortgage servicing market (37.1 million loans).