Home loan demand falls despite interest rate dip

By Julie Haviv

NEW YORK (Reuters) - U.S. mortgage applications fell for a second straight week, largely reflecting a drop in demand for home refinancing loans, an industry group said on Wednesday.

The Mortgage Bankers Association said its seasonally adjusted index of mortgage applications, which includes both purchase and refinance loans, for the week ended September 28 decreased 2.7 percent to 636.7.

Some market analysts say mortgage application data has been artificially inflated in recent months because prospective borrowers file multiple applications to obtain a single loan due to widespread tightening of lending standards.

This activity is a result of a sharp rise in defaults in the subprime mortgage market, which caters to borrowers with poor credit histories.

The MBA's data counts all applications, so borrowers who are ultimately denied are also included.

Bob Walters, chief economist at Quicken Loans, an online mortgage lender in Livonia, Michigan, said adjustable-rate mortgage resets and government mortgage programs should buoy refinancing activity.

"In recent weeks we've seen month-over-month home sales drop to multiyear lows, so a corresponding drop in purchase activity is to be expected," he said.

A deluge of adjustable-rate mortgages are going to reset in October, which should spur refinancing activity, Walters said.

Furthermore, a Federal Housing Administration plan to make it easier for homeowners facing foreclosure to refinance their loans should also increase activity, he said.

Applications were 0.4 percent above their year-ago level. The four-week moving average of mortgage applications, which smoothes the volatile weekly figures, was up 0.5 percent to 655.4.

INTEREST RATES FALL

Borrowing costs on 30-year fixed-rate mortgages, excluding fees, averaged 6.32 percent, down 0.06 percentage point from the previous week. Interest rates were above year-ago levels at 6.24 percent.

The MBA's seasonally adjusted purchase index, fell 1.8 percent to 411.4, its lowest level in over five months. The index still came in above its year-earlier level of 404.6, a rise of 1.7 percent.

The group's seasonally adjusted index of refinancing applications decreased 3.8 percent to 1,950.4. The index was down 1.0 percent from a year ago.

The refinance share of applications decreased to 46.0 percent from 46.4 percent the previous week.