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MBA Weekly Report Finds Interest Rates and Credit Supply Dip While Mortgage Applications Edge Up

[Updated: Dec 11, 2020 ] May 08, 2020 by Marc Rapport
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Mortgage applications edged up very slightly last week but the availability of credit to finance those notes has hit nearly a six-year low, according to the Mortgage Bankers Association.

The trade group said Tuesday, May 5, that its Market Composite Index, which gauges application volume, rose a seasonally adjusted 0.1% in the week ending Friday, May 1.

The MBA's weekly applications survey found that refinancing applications – which comprised 70% of mortgage activity -- again dipped but were still 210% higher than the same week in 2019.

The trade group's new purchase applications index, meanwhile, was up an unadjusted 7% from the previous week but 19% lower than the same week a year ago.

"This annualized deficit has decreased as more states reopen amidst the apparent pent-up demand for homebuying," MBA chief economist Mike Fratantoni said as the overall index notched its third up week in a row.

Interest rates slip while credit availability slides

The 30-year fixed-rate mortgage was at 3.40%, a record low in the MBA surveys, but many lenders are offering higher rates for refinancing than for new money loans, Fratantoni said, "and others are suspending the availability of cash-out refinance loans because of their inability to sell them to Fannie Mae and Freddie Mac."

The government-sponsored enterprises (GSEs) have made numerous moves to encourage the housing market but continue to be constrained in the buying cash-outs that have fallen into forbearance, the MBA said, and the huge surge in those is not likely to abate soon given the stunning collapse of the U.S. job market.

The MBA said Thursday, May 7, that its monthly Mortgage Credit Availability Index (MCAI) fell in April to its lowest level since December 2014. As the full effect of the pandemic grew, the MCAI plunged 12.2% in a month to 133.5, with the base being 100 in March 2012.

The MCAI uses Ellie Mae's AllRegs Market Clarity analytics to create the index. "The abrupt weakening of the economy and job market -- and the uncertainty in the outlook -- drove credit availability down in April for the second consecutive month," said Joel Kan, the MBA's associate vice president of economic and industry forecasting.

Kan said the tightened credit supply was being felt for all loan types. "The decline was largely driven," he said, "by lenders dropping many low credit score and high-LTV programs, as well as further reduction in jumbo and non-QM products."

Up from last week, way down from a year ago

Rates for all loan types dropped again in the past week, the MBA said. Interest rates remain lowest for 15-year fixed-rate mortgages, at an average of 2.93%, while 5/1 ARMs fell to 3.20% on average from 3.29% the week before. Thirty-year fixed notes fell from 3.43% to 3.40% on average, and jumbo loans of $510,400 or more fell from 3.72% in a week to an average of 3.69%.

That helped purchase volume continue edging higher, with markets in Arizona, Texas, and California showing the most strength, but there's a ways to go, particularly in COVID-19 hot spots such as California, New York, and Washington state.

The MBA's purchase applications index showed that California was down 30.9% from this point a year ago, Washington state was down 37.5%, and New York was down 50.5%.

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