Fears of complications resulting from the partial government shutdown could be playing a part in the recent decline in mortgage applications, particularly those insured by the Federal Housing Administration (FHA), according to Mortgage Bankers Associate (MBA) Vice President of Economic and Industry Forecasting Joel Kan.
Mortgage application numbers slid 9.8 percent to close out the year, per MBA’s Weekly Mortgage Applications Survey for the two-week period ending Dec. 28, 2018. The survey measures application volume via the Market Composite Index, which accounts for seasonal adjustments, such as those related to the holiday season.
Because conventional loan applications fell at a rate exceeding that of other loan types, certain loan segments recorded an increase in mortgage activity share despite also seeing declines in application volume.
“Mortgage applications fell over the past two weeks – even as the 30-year fixed-rate mortgage decreased to 4.84 percent, its lowest since September 2018,” Kan said. “Investors continued to show a preference for safer U.S. Treasuries, as concerns over U.S. and global economic growth, along with uncertainty over the current government shutdown, drove rates lower. Even with lower borrowing costs, both purchase and refinance applications decreased over the two-week holiday period, as both conventional and government applications dropped. Part of the decline in mortgage applications was possibly because of the government shutdown, as concerns over delays in FHA application processing times likely contributed to the weakness in activity.”
Although the FHA share of total applications increased slightly during the week ending Dec. 28, to 10 percent from 9.7 percent, MBA noted in a statement to Dodd Frank Update that it experienced a 0.7 percent drop from 10.4 percent the week prior to that. The more recent uptick in FHA application share was driven by the larger drop in conventional loan applications, according to MBA.
MBA also noted that the number of FHA applications fell for both purchase and refinances over the same two-week period.
Although the overall index changes were calculated relative to two weeks prior, the following compositional and rate measures are presented relative to the previous week only, MBA said in a press release.
There was a 0.9 percent decrease in the refinance share of mortgage activity, to 42.7 percent from 43.6 percent the week before. The adjustable-rate mortgage (ARM) share remained steady at 7.6 percent of total applications.
The share of total applications insured by the Department of Veterans Affairs (VA) increased to 11 percent from 10.1 percent the previous week and those insured by the U.S. Department of Agriculture (USDA) share of total applications decreased to 0.6 percent from 0.7 percent the week before.
For 30-year fixed-rate mortgages with conforming loan balances ($453,100 or less), the average contract interest rate dropped to 4.84 percent from 4.86 percent, with points decreasing to 0.42 from 0.47 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans. The effective rate also decreased from the previous week.
The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $453,100) increased to 4.72 percent from 4.59 percent, with points increasing to 0.3 from 0.28 (including the origination fee) for 80 percent LTV loans. The effective rate increased as well.
The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA slipped to 4.86 percent from 4.91 percent, with points declining to 0.54 from 0.57 (including the origination fee) for 80 percent LTV loans. The effective rate also decreased from the previous week.
For 15-year fixed-rate mortgages, the average contract interest rate dropped to 4.25 percent from 4.31 percent, with points increasing to 0.6 from 0.5 (including the origination fee) for 80 percent LTV loans. The effective rate dropped as well.
For 5/1 adjustable-rate mortgages (ARMs), the average contract interest rate dropped to 4.16 percent from 4.23 percent, with points falling to 0.34 from 0.36 (including the origination fee) for 80 percent LTV loans. The effective rate also decreased.