The Mortgage Bankers Association today released the Weekly Survey on Mortgage Application Activity for both the week ending December 25, 2009 and the week ending January 1, 2009.

The MBA survey covers over 50 percent of all US residential mortgage loan applications taken by mortgage bankers, commercial banks, and thrifts.  The data gives economists a look into consumer demand for mortgage loans.  A rising trend of mortgage applications indicates an increase in home buying interest, a positive for the housing industry and economy as a whole.  Furthermore, in a low mortgage rate environment, such a trend implies consumers are seeking out lower monthly payments which can result in increased disposable income and therefore more money to spend on discretionary items or to pay down other debt.

In the last report released before the MBA went on holiday, seasonal distractions combined with rising mortgage rates had obvious effects on the motivation of prospective home buyers and fence sitting refinancees as
loan application volume fell 10.7 percent.  The Refinance Index decreased 10.1 percent from the prior week and the seasonally adjusted Purchase Index decreased 11.6 percent. The refinance share of mortgage activity increased to 75.9 percent of total applications from 75.2 percent.

In today's release, which reported on the previous two weeks, holiday distractions and rising mortgage rates again had a negative effect on mortgage loan applications.

In the week ending December 25, 2009, loan application demand dropped 22.8 percent with the Refinance Index recording a 30.5 percent decline while the Purchase Index fell 4.0 percent. In the week ending January 1, 2010, mortgage applications rose by 0.5 percent thanks to a 3.6 percent increase in purchase loan apps, meanwhile the refinance index fell by 1.6 percent.

Both week's include an index adjustment to account for Christmas and New Year's day market holidays. On an unadjusted basis, loan application demand fell 46.9 percent during the week of Christmas and increased 0.4 percent ahead of the New Year.

After refinance demand spiked when mortgage rates hit an all time low in the first half of 2009, the refinance index has been putting along near average levels. Average feels very slow to me right now...

A similar dynamic has occurred in the purchase market. After a small correction over the summer thanks to record low rates and the FTHB tax credit, the purchase application index has been in a freefall. It has not been this low since 1997!!!

For the week ending January 1, 2010, the average contract interest rate for 30-year fixed-rate mortgages increased to 5.18 percent with points decreasing to 1.28. The average contract interest rate for 15-year fixed-rate mortgages increased to 4.62 percent, with points increasing to 0.98.

The refinance share of mortgage activity for the week ending January 1, 2010 was 68.2 percent, a decrease from 69.6 percent in the previous week.  This is a large reduction from the week ending December 18,2009 when refinances accounted for 75.9 percent of all loan applications....a function of the large decline in refinance applications vs. the relatively stagnate purchase index. This is of no surprise as mortgage rates are on the rise and the holiday season is not exactly a consumer's preferred period to be dealing with loan docs.

I call attention to this stat for another reason though...

There are only so many QUALIFIED borrowers left to refinance.  Fence sitters and ARM adjusters are not expected to be a major source of business in 2010 as anyone who was qualified to refinance likely already did so in 2009 when rates were at all time lows. This would imply total loan production will continue to decline in 2010, something we have already pointed out. More importantly it means originators will be fighting it out for purchase applications when the spring buying season picks up.

LOAN ORIGINATORS: if you haven't already put together a marketing campaign for a purchase driven lending are way behind.