By Mike Colpitts
Mortgage refinances soared to make up four out of five mortgages consumers applied for during the week, as homeowners flocked to obtain new mortgages. The jump in refinancing came as a result of new measures instituted by the Obama administration dropping limits on the loan-to-value of refinances.
More than 1-million underwater homeowners are expected to be helped through the program, which was started on Dec.1 st. The Mortgage Bankers Association said its weekly survey tracking U.S. mortgage activity showed a 9.3% jump in refinance applications for the week ending Dec.9.
Refinances made up 79.7% of applications, an increase from 76% the prior week. However, home purchase applications slipped by 8.2%. The survey covers 75% of mortgage financing applied for during any given week.
The fixed 30-year mortgage locked-in by borrowers fell to the lowest contracted rate for the year at 4.12%, down six basis points from a week earlier. The average low national average rate quote by Freddie Mac bottomed out at 3.94% for the same mortgage in October, but relatively few consumers have good enough credit scores to obtain the lowest rate.
The average rate on the fixed 30-year FHA mortgage also dropped to 3.94% from 3.98%. Consumers are obtaining more mortgages backed by the Federal Housing Administration because of their lower rates offered through banks and mortgage companies.
The 15-year fixed rate loan also hit the lowest level of the year, reaching 3.44% on 80% LTV loans. The average contracted rate on a 5-year adjustable rate mortgage dropped to 2.93%, which was also the lowest for all of 2011.
The Market Composite Index, which accounts for all mortgage applications, rose 4.1% on a seasonally adjusted basis for the week. The four-week moving average is just 0.65% higher as consumers delay purchasing homes.