The Mortgage Bankers Association (MBA) today released its Weekly Mortgage Applications Survey* for the week ending July 8, 2011.  This week's results include an adjustment to account for the Fourth of July holiday. 

Excerpts from the Release...

The Market Composite Index, a measure of mortgage loan application volume, decreased 5.1 percent on a seasonally adjusted basis from one week earlier.  On an unadjusted basis, the Index decreased 24.0 percent compared with the previous week.  The four week moving average is down 4.7percent.

The Refinance Index decreased 6.2 percent from the previous week, and was 42.1 percent lower than a year ago.  The Refinance Index has decreased the past four consecutive weeks, reaching its lowest level since April 29, 2011. The Refinance Index is not seasonally adjusted but is adjusted for the holiday.  The four week moving average is down 6.3 percent.

The seasonally adjusted Purchase Index decreased 2.6 percent from one week earlier. The unadjusted Purchase Index decreased 21.9 percent compared with the previous week and was 0.2 percent lower than the same week one year ago. The four week moving average is down 1.0 percent.

The average contract interest rate for 30-year fixed-rate mortgages decreased to 4.55 percent from 4.69 percent, with points increasing to 0.99 from 0.90 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans.  The effective rate also decreased from last week.

The average contract interest rate for 15-year fixed-rate mortgages decreased to 3.68 percent from 3.79 percent, with points increasing to 1.10 from 0.88 (including the origination fee) for 80 percent LTV loans. The effective rate also decreased from last week.

The refinance share of mortgage activity decreased to 65.6 percent of total applications from 66.4 percent the previous week. The adjustable-rate mortgage (ARM) share of activity decreased to 5.5 percent from 6.1 percent of total applications from the previous week.

The broken record is still stuck....

Over a month ago we wrote, "Right now we're witnessing the beginnings of a mini-refinance boom in the primary mortgage market, but there has been little activity in the secondary market that would indicate increased rate locking by consumers." says MND's Managing Editor Adam Quinones. "However, if conventional 30-year rates reach 4.25%, we'd expect to see a mini-boom scenario play out. There is much stored demand in the system as many borrowers missed the boat on record low rates in October and early November. This crowd is waiting in the wings for those rates to return. Whether or not that happens is still very much up in the air"

In reaction to that comment, Ted Rood, a loan originator from MetLife Home Loans added, "One thing to consider regarding refi volume is that HUD effectively ended FHA streamlines over the course of the last year by tightening underwriting guidelines and jacking up monthly MIP fees. After the change, many existing FHA clients have been unable to meet net benefit rules,  even when dropping their rate by 1% or more, since their monthly MIP would double on the new loan. So FHA clients don't get to benefit from lower rates and HUD doesn't get new upfront MIPs from existing clients with clean payment histories who want to refinance".

Plain and Simple: Mortgage rates have fallen but loan demand hasn't reacted as one might expect (same old story).  A combination of low to negative home-equity levels and tighter lender underwriting guidelines and weak consumer credit profiles are preventing responsible homeowners from reducing their monthly loan payments. Prospective homebuyers would rather "wait and see" if home prices have stabilized yet. Loan demand is stagnant. We have described this as a negative feedback loop.

READ MORE: New FHA MIP Structure to Slow Streamlines

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READ MORE: Realtors Request Looser Credit Regs as Home Sales Decline

* ABOUT: The MBA's loan application survey covers over 50% of all U.S. residential mortgage loan applications taken by mortgage bankers, commercial banks, and thrifts. The data gives economists a snapshot view of consumer demand for mortgage loans. In a falling mortgage rate environment, a trend of increasing refinance applications implies consumers are seeking out lower monthly payments. If consumers are able to reduce their monthly mortgage payment and increase disposable income through refinancing, it can be a positive for the economy as a whole (may boost consumer spending. It also allows debtors to pay down personal liabilities faster. A trend of declining purchase applications implies home buyer demand is shrinking.