March 18, 2009 / 11:14 AM / 10 years ago

U.S. mortgage applications spike on refinance demand

NEW YORK (Reuters) - U.S. mortgage applications surged last week, driven by a spike in demand for refinancing as the average 30-year fixed-rate home loan rate fell, the Mortgage Bankers Association said on Wednesday.

The sign for a foreclosed house for sale sits at the property in Denver, Colorado March 4, 2009. REUTERS/Rick Wilking

Refinancing applications jumped 30 percent in the week ended March 13 as the borrowing rate dipped 0.07 percentage point to 4.89 percent, tying the record low reached in early January in a survey that dates to 1990.

The MBA’s market index, which includes both purchase and refinance loans, jumped 21.2 percent to 876.9, the highest since mid-January.

The Mortgage Bankers Association said its seasonally adjusted refinancing applications index jumped 29.6 percent to 4,497.6, also the highest level since mid-January.

But purchase applications continued to lag those for refinancing, rising just 1.5 percent to a one-month high of 257.1. While homeowners are often compelled to cut current costs, worries about job loss or hopes that prices will cheapen further have keep many potential buyers at bay.

First-time buyers are better positioned to take advantage of low rates and some measures to help the housing market, as they are unburdened with existing homes to sell in a market flooded with unsold houses. They can also access a new $8,000 tax credit created by President Barack Obama’s $275 billion housing stimulus.

The stimulus and other government steps aim to press down borrowing costs, spur refinancing and stifle the groundswell of foreclosures undermining the housing market.

“In a survey of clients, the early indication is the tax credit is attractive and motivates primarily first time buyers,” said Patrick Lashinsky, chief executive of ZipRealty brokerage in Emeryville, California.

“Other programs such as loan modification, low interest rates and state incentives directed at current home owners don’t seem to provide the solution they need to sell their homes at this time,” he added.

Home loan rates have fallen as the government has purchased more than $250 billion of mortgage-related assets and announced unprecedented steps to stabilize the deepest housing slump since the Great Depression.

A year ago, the average rate on a 30-year mortgage was closer to 6 percent.

The Federal Reserve purchases of mortgage-related assets is nearing the half-way mark targeted by the end of June to help cut mortgage costs and revive housing. The programs are widely expected to be expanded to bring borrowing costs down, stimulate purchases and help struggling homeowners to refinance and avert foreclosure.

Refinancings requests represented about 73 percent of all mortgage applications last week.

Fannie Mae, the government-controlled home funding company, on Wednesday said its February refinancing volume nearly tripled from January to more than $41 billion.

February’s refinancing volume was the company’s highest in almost a year. This activity is expected to increase further under Obama’s ‘Making Home Affordable’ plan and new broader refinancing programs from Fannie Mae and its counterpart Freddie Mac.

“Providing broader access to affordable, sustainable mortgages through expanded refinancing opportunities is a critical part of preventing future foreclosures and hastening recovery.” Tom Lund, executive vice president of single-family mortgage business at Fannie Mae, said in a statement.

Editing by Chizu Nomiyama

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