Refinance Activity Surges Following Dip in Mortgage Rates

Mortgage applications saw increased activity in the last week of September, the ""Mortgage Bankers Association"":http://www.mbaa.org/default.htm (MBA) reported.

[IMAGE]

Mortgage application volume increased 16.6 percent in the week ending September 28, according to MBA's Mortgage Composite Index. On an unadjusted basis, the index increased 17 percent compared with the previous week. MBA also reported an increase in its Purchase Index, which rose 4 percent (both adjusted and unadjusted) from one week earlier and 11 percent year-over-year.

Meanwhile, the Refinance Index increased 20 percent from a week before to its highest recorded level since April 2009.

The refinance share of total mortgage activity increased two percentage points to 83 percent, while the adjustable-rate mortgage share remained flat at 4 percent. The HARP share of refinance applications decreased three percentage points to 23 percent.

[COLUMN_BREAK]

Mike Fratantoni, MBA's VP of research and economics, said the jump in refinance application volume stemmed from sharp decreases in each of the association's five measured mortgage rates.

""Financial markets continue to adjust to QE3 as the ongoing presence of the Federal Reserve as a significant buyer of mortgage-backed securities applies downward pressure on rates,"" Fratantoni said. ""Although there was a slight decline in the HARP share of refinance activity, the level of HARP volume remains steady.""

In a response to the data, ""Capital Economics"":http://www.capitaleconomics.com/ pointed to encouraging early signs of rising mortgage demand. The firm pointed to a 23.6 percent surge in refinancing applications and a 4.6 percent increase in home purchase applications in the two weeks following the Fed's announcement of a third round of quantitative easing.

While the signs point to more good news in the future, Capital Economics was restrained in its optimism.

""Worryingly, MBS yields have rebounded in recent days. If this rise were sustained, mortgage rates may not fall much lower,"" wrote Paul Diggle, property economist at Capital Economics. ""And with mortgage lending criteria as strict as ever, many mortgage applicants may still find themselves being turned down.""

""For now, then, we remain somewhat cautious about the short-term prospects for mortgage-dependent buyers to contribute meaningfully to the housing recovery,"" he continued.