Mortgage Applications Increase for Third Time in 4 Weeks

The Mortgage Bankers Association reported today that applications for home loans rose last week for the third time in four weeks. The industry group's market composite index increased by 1.3% compared to the previous seven-day period. This marks the fifth time in 10 weeks that the index has headed higher. At the present level, it's off its May high by 51%.

As I've noted on multiple times over the last few months, it's clear that higher mortgage rates are responsible for the downward trend. Since the first week of May, the average rate on a conforming 30-year fixed-rate mortgage has skyrocketed, going from 3.35% all the way up to 4.57% in September -- though, over the last few weeks following the Federal Reserve's decision not to taper, the rate dropped back down to 4.22%. The recent correction aside, however, the magnitude and speed of the advance have been unprecedented.

Applications to refinance existing mortgages have been the hardest-hit by the hike in rates. Five weeks ago, the MBA's refinance index dropped by a precipitous 20%, the biggest single-week decline of 2013. With this in mind, last week's results, in which refinance applications were up 1.3%, likely served as a welcome sign at the nation's largest mortgage originators.

Largely because of the drop in refinance volume, Wells Fargo (NYSE: WFC  ) , the nation's largest mortgage originator, recently eliminated 2,300 positions in its mortgage department, JPMorgan Chase (NYSE: JPM  ) has acknowledged that it expects to lose money in its mortgage originations business in the latter half of the year, and Bank of America (NYSE: BAC  ) is letting 2,100 employees go for the same reasons.

And this is only the latest such move. All three of these banks also felt the impact on their balance sheets last quarter, notching declines in their accumulated other comprehensive incomes of $3.4 billion, $3.4 billion, and $4.2 billion, respectively. The trend led the chief executive of a regional bank to proclaim earlier this month that rising interest rates are the "next really big risk" to the banking industry.

Despite last week's uptick, refinance volumes are still off their early May high by 60%. Over the same time period, moreover, they've gone from a 76% share of overall mortgage application activity down to a 64% share.

Applications to purchase a home haven't been hit as hard. The MBA's purchase index decreased last week by 1%, though purchase-money mortgage applications remain down over the last four and a half months by a comparatively reasonable 16%. Compared to the same month last year, they're down by 7.4%.

Finding the next bank stock home run
Have you missed out on the massive gains in bank stocks over the past few years? There's good news: It's not too late. Bargains of a lifetime are still available, but you need to know where to look. The Motley Fool's new report "Finding the Next Bank Stock Home Run" will show you how and where to find these deals. It's completely free -- click here to get started.


Read/Post Comments (0) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

DocumentId: 2675723, ~/Articles/ArticleHandler.aspx, 4/20/2014 7:49:16 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement