The Mortgage Bankers Association Weekly Mortgage Applications Survey for the week ended November 12 reports a drop of 14.4 percent in its Market Composite Index, a measure of loan application volume, from the week ended November 5. This figure is seasonally adjusted but does not include an adjustment for the Veterans Day Holiday. On an unadjusted basis, the Index was down 15.0 percent from the previous week.
The Refinance Index decreased 16.5 percent from the previous week and is at the lowest level observed since July of this year; however, this figure is apparently similarly unadjusted. Soon after the MBA report was released, Merrill Lynch/Bank of America released an Agency MBS Research Alert pointing out this omission. According to the Alert, the seasonally adjusted refinance index dropped from 4587 to 3831 while the non-seasonally adjusted indices dropped by exactly the same amount. "An identical move in both seasonally adjusted and non-seasonally adjusted indices implies that the refinance index was not adjusted for Veterans Day Holiday."
The memo concludes that, with a 25% adjustment to account for Veterans Day holiday, the refinance index was marginally higher (4788) even though the mortgage rate was 18 bps higher based on the MBA survey." It goes on to say that, as the holiday is not widely observed, the adjustment should probably not be a full 25 percent, but the adjustment does flatten out the drop.
The unadjusted Purchase Index decreased 8.2 percent compared with the previous week and was 11.3 percent lower than the same week one year ago. The seasonally adjusted Purchase Index decreased 5.0 percent from one week earlier, the first decrease after three consecutive weekly increases.
The four week moving average for the seasonally adjusted Market Index is down 2.8 percent. The four week moving average is up 1.3 percent for the seasonally adjusted Purchase Index and down 3.7 percent for the Refinance Index.
Refinancing held an 80.3 percent share of total mortgage activity, down from 81.7 percent the previous week while adjustable-rate mortgages accounted for 5.3 percent of applications, unchanged from the previous week.
The average contract interest rate for 30-year fixed-rate mortgages was up sharply to 4.46 percent with 1.13 points (including the origination fee) from 4.28 percent and 1.04 points. This is the highest 30-year fixed-rate since September 10, 2010. The effective rate also increased from last week.
The average rate for 15-year fixed-rate mortgages increased to 3.87 percent from 3.64 percent, with points decreasing to 0.91 from 1.08. This is the highest 15-year fixed-rate since the week ending September 17, 2010.The effective rate also increased from last week. All interest rates are for 80 percent LTV loans.
"Rates increased sharply last week due to stronger economic data and lingering uncertainty regarding the structure and impact of the Fed's QE2 program. Mortgage applications, particularly for refinances, dropped in response," said Michael Fratantoni, MBA's Vice President of Research and Economics.