U.S. Mortgage Applications Climb, ARM Rates Higher


Applications for U.S. home loans rose last week, while the highest adjustable rate mortgages in over six years put another nail in the coffin of the once-torrid sector, an industry group's data showed on Wednesday.

The Mortgage Bankers Association's mortgage applications index rose by a seasonally adjusted 1.3% to 622.9 in the week ended Aug. 31. Average 30-year loan rates rose 0.01 percentage point to 6.42% during the week.

One-year adjustable rate mortgage (ARM) rates also rose 0.01 percentage point, but at 6.52%, remain above longer-term borrowing costs.

These adjustable mortgages had allowed many borrowers to acquire homes they might not otherwise be able to afford. But now the squeeze is on homeowners, with many being pushed into default or foreclosure because payments surged on their loan reset dates.

ARMs made up just 12.6% of total applications last week, down from 15% the prior week, the MBA said. At their recent peak, more than 30% of new loans were adjustable-rate products.

In the week ended Aug. 24, the industry group said the one-year ARM rate surged by nearly 0.70 percentage point, the largest weekly jump on record.

The ARM share is being whittled down as the affordability product becomes unaffordable.

The last time the ARM share was over 30% was in early June 2006, when it reached 30.7%, an MBA spokeswoman said.

Squeeze Play

The MBA also said its seasonally adjusted purchase index rose 0.4% to 425.8 in the latest week. Its refinancing applications gauge increased by 2.3% to 1,770.2.

The purchase and refinancing gauges are subcomponents of the overall mortgage applications index.

All three of these weekly indexes were down by more than 1% on a four-week moving average, which smoothes out volatility.

It has become much more difficult for consumers to get home loans approved. Lenders have toughened criteria as late payments and foreclosures mount on mortgages issued when standards were looser.

Some of the sporadic increases in home purchase applications reflects potential borrowers applying more than once, aiming to better their chances of getting approved.

Over the summer, many borrowers were also forced to start the applications process anew when their lenders shut their doors because of the credit and liquidity crisis.