By Kevin Chiu
The lowest mortgage rates of the year arrived in time for New Year’s, according to the Mortgage Bankers Association survey. However, 
despite the drop, mortgage refinances and mortgages for home purchases slipped for the week.
The drop in applications was attributed to the traditional holiday slowdown caused by Christmas and New Years, but also demonstrates growing pressures on many homeowners. The fixed 30-year conventional mortgage hit an average of 4.08% on fully contracted mortgages, the lowest of the year.
FHA loans however, which now compose the largest share of mortgages due to their lower mortgage rates reached 3.93%.
Refinancing dipped 1.6% from the previous week, despite new guidelines that went into effect the beginning of the month for homeowners under a new Obama administration program with Freddie Mac and Fannie Mae, releasing loan-to-value limits on home refinances and other restrictions. The refinancing share of activity, however, reached a peak for the year of 80.7% of all mortgage activity.
Analysts said that the drop in applications for refinancing also demonstrates additional stresses in the U.S. economy. “Continued anxiety surrounding the fragile economic situation in Europe led interest rates lower last week,” said MBA economist Michael Fratantoni. “Remarkably low rates are not enough, as many homeowners continue to hold back due to lack of equity in their properties, poor credit and a weak job market.”
Concerns over the U.S. economy, jobs and dropping home values in many areas of the country are leading homeowners to rethink even refinancing home mortgages. Without principal reductions on mortgages a growing number of homeowners would still be underwater on their home loans.
Studies show that at the current rate of deflation in most of the nation one out of three homeowners will be upside down on their mortgages by the end of 2012. The average loan rose to $217,774 in November from $213,430 in October. Loan sizes for the month of December will not be available until after Jan 1 st.