Magazine article American Banker

Will Application Surge Translate into Refi Volume?

Magazine article American Banker

Will Application Surge Translate into Refi Volume?

Article excerpt

A recent spike in a pair of closely watched mortgage application indexes probably reflects recent interest rate declines and efforts by borrowers to refinance out of resetting adjustable-rate loans, observers said.

However it remains to be seen how much volume will result from the apparent increase in demand.

A 17.07% rise in the Mortgage Bankers Association's index of purchase applications from Nov. 23 to Dec. 7 has pushed that measure to its highest level since January.

The MBA's refinance index rose even more - 37.59% - during the two weeks, to its highest level at least since January 2006.

The survey captures about 50% of nationwide retail home loan applications, and the MBA has said it therefore should not closely reflect issues specific to the subprime market.

(The trade group has also predicted that originations will fall 19.66% next year, to $1.86 trillion.)

Though "obviously, some" borrowers cannot refinance because of poor credit, Robert Lacoursiere, an analyst at the Banc of America Securities LLC unit of Bank of America Corp., said, "You would expect" refinancings "to go up in line with the resets that people are facing."

Ajay Rajadhyaksha, the head of the U.S. fixed-income strategy group at Barclays PLC's investment bank in New York, said the movement was "occasioned by the fact that ... 30-year mortgage rates touched lows that we have not seen since the start of 2006 ... . There was a sudden spike, but I don't think it's going to be sustained, especially because mortgage rates have risen a fair amount since."

The refi index's current level "is still just a ... small share of ... the big refi waves we saw in the middle of 2003," Mr. Rajadhyaksha said. "It should probably drop off. ... But at the margin it is a good sign. It means that people are starting to refi - at least in the prime markets. …

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