Lower interest rates following the Federal Reserve's announcement fueled a surge in mortgage applications late last week.  According to the Mortgage Bankers Association (MBA), its Market Composite Index which measures the volume of those applications increased 9.3 percent on a seasonally adjusted basis during the week ended September 23.  On a non-adjusted basis volume was up 9.2 percent.

The Refinance Index rose 11.2 percent while the seasonally adjusted Purchase Index was up 2.6 percent.  The unadjusted Purchase Index increased 2.2 percent from the week ended September 16 and was 0.1 percent higher than during the same period in 2010.

Purchase Index vs 30 Yr Fixed

Refinance Index vs 30 Yr Fixed

Four week moving averages rose for the seasonally adjusted Market Index which was up 1.96 percent and the Purchase Index, up 2.60 percent; the seasonally adjusted Purchase Index decreased 0.18 percent. 

"Mortgage rates declined last week, at least partially in response to the Fed's announcement that they would shift their portfolio towards longer-term Treasury securities, and that they would resume buying mortgage-backed securities," said Mike Fratantoni, MBA's Vice President of Research and Economics. "With lower rates, refinance application volume increased to its highest level since August 19, 2011. Purchase application volume also increased. However, the increase was in conventional purchase applications, which were up by 4.9 percent. Purchase applications for government loans fell by 0.6 percent over the week, likely influenced by the pending decline in FHA loan limits."

Refinancing as a share of all mortgage activity rose to 79.7 percent, an increase of 14 basis points from the previous week and the highest share of activity since the survey recalibrated its benchmarks in January.  Adjustable rate mortgage (ARM) activity fell 6.7 percent.

Figures for of August show that the average size of a loan used to purchase a home during the month was $212,700, up from $211,200 in July.  Loans for refinancing averaged $241,300, up from $209,200 the previous month.  The largest loans were made in the Pacific region where the size of the average purchase mortgage was $304,800 and the average loan for refinancing was $344,500.

Rates for a conforming 30 year fixed-rate mortgage (FRM) decreased by 4 basis points to 4.25 percent during the week and points, including the origination fee, were down from 0.41 to 0.35 point.  The average contract interest rate for a jumbo 30-year FRM (a loan with an amount exceeding $417,500) decreased from 4.55 percent with 0.46 point to 4.51 percent with 0.38 point.  FHA backed 30-year loans decreased to 4.05 percent with 0.39 point from 4.07 percent with 0.51 point.  The effective rate for all three 30-year products also decreased.

The rate for conforming 15-year fixed-rate mortgages rose a single basis point to 3.47 percent with points unchanged at 0.45.  The effective rate also increased from the previous week.  The rate for a 5/1 ARM decreased from 2.96 percent with 0.49 point to 2.95 percent with 0.48 point and the effective rate declined as well.  Interest rates quoted are, in all cases for loans with an 80 percent loan to value ratio.

MBA's application survey is conducted among mortgage bankers, commercial banks and thrifts and covers over 75 percent of all U.S. retail residential mortgage applications.