Mortgage Applications Slide; Rates Tread Water

Mortgage applications to finance the purchase of homes and to refinance existing loans fell last week even as U.S. home loan rates treaded water just above record lows, the Mortgage Bankers Association said on Wednesday.

Requests for new loans dropped in the Good Friday holiday week after five straight weekly increases.

"The MBA does not provide a holiday adjustment for the Easter/Passover weekend, which may have contributed to this week's decrease in application volume," the trade group said in a statement.

During the prior five-week run, average 30-year mortgage rates sank by as much as a half percentage point before starting to trend up again.

The total mortgage applications index fell 11 percent in the week ended April 10 to a seasonally adjusted 1,113.2.

The purchase index fell 11.3 percent to 264.1 and the refi index dropped 10.9 percent to 6,071.7.

After swiftly tumbling from interest rates as high as 6-1/2 percent in October on sweeping government actions to revive housing, home loan borrowing costs have stagnated over the past month.

In the week ended April 10, the average rate for fixed-rate 30-year mortgages dipped to 4.70 percent from 4.73 percent the prior week. It hit an all-time low 4.61 percent two weeks ago, the trade group said.

As the critical spring home selling season heats up, the response by home shoppers to current loan rates will be keenly monitored.

Existing owners looking to slice costs have been the biggest beneficiaries of falling rates, applying en masse to refinance loans to shave monthly payments and in some cases avert foreclosure.

Purchase demand has been lagging well behind but applications had also risen in the previous five weeks.

The main impediments to buy, even with affordability at a record high, are fears of job loss and hopes of greater bargains as prices sink.

Some potential homeowners may also be waiting for loan rates to ratchet down further.

The Federal Reserve's pledge to buy up to $1.45 trillion in mortgage-related securities and $300 billion of U.S. Treasuries this year has already tugged housing costs lower.

The Fed is only about one-quarter of the way through these purchase programs, and the Treasury is also consistently buying mortgage bonds each month.

"We think the Fed and Treasury buying programs have produced mortgage rates that are significantly lower than they would have been otherwise," wrote Nancy Vanden Houten, analyst at Stone & McCarthy Research Associates in Princeton, New Jersey. "But given all of the variables at work, there are limits to the effectiveness of any program aimed at pushing mortgage rates lower still."

Still, there are signs that the array of government programs aimed at breathing life into the worst housing market since the Great Depression is gaining traction.

Nearly 568,000 of all 2008 tax returns filed as of March 6 claimed a first-time home buyer credit, the National Association of Home Builders said, citing data from the Treasury Inspector General for Tax Administration.

First-time buyers who purchase a home starting Jan. 1, 2009, and before Dec. 1, 2009, are eligible for up to an $8,000 tax credit as part of President Barack Obama's housing stimulus.

Also, while the MBA's refinancing index slipped last week it has nonetheless doubled since the end of February.

The index is approaching its previous peak of 7,400 from January 2009 though it is well below the 10,000 level it almost reached during the major refi wave of 2003, Barclays Capital wrote in a recent report.

As the administration's Home Affordable Refinance Program gets fully underway, the refi index could take another leap in coming months.

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