The Mortgage Corner

The Mortgage Bankers Association reported that its Refinance Index increased 20 percent from the previous week. This was the highest Refinance Index recorded in the survey since April of 2009. The seasonally adjusted Purchase Index increased 4 percent from one week earlier. This is while foreclosure rates continue to drop according to Lenders Processing Services (LPS).

“Refinance application volume jumped to the highest level in more than three years last week as each of the five mortgage rates in MBA’s survey dropped to new record lows in the survey,” said Mike Fratantoni, MBA’s Vice President of Research and Economics. “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."

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Graph: Calculated Risk

The Federal Reserve has just initiated its QE3 quantitative easing program to mainly buy mortgage-backed securities on the open market, which is driving mortgage rates to lower record lows. In California, the 30-year conforming fixed rate has dropped to 3.125 percent with 0 origination points, for instance, while the 30-year jumbo conforming fixed is at 3.375 percent for 0 points origination. Zero cost loans are approximately one quarter percent higher to take into account escrow/title closing costs.

LPS reported that 4.04 percent of mortgages were in the foreclosure process, down slightly from 4.08 percent in July, and down from 4.12 percent in August 2011.

This gives a total of 10.91 percent delinquent or in foreclosure. It breaks down as:
• 1,910,000 properties that are 30 or more days, and less than 90 days past due, but not in foreclosure.
• 1,520,000 properties that are 90 or more days delinquent, but not in foreclosure.
• 2,020,000 loans in foreclosure process.
For a total of ​​5,450,000 loans delinquent or in foreclosure in August. This is down from 5,562,000 last month, and down from 6,080,000 in August 201, according to Calculated Risk.

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Graph: Calculated Risk

We are also seeing overall economic activity accelerating. The ISM manufacturing index saw a huge boost after 3 down months to a 51.5 percent reading for manufacturing activity. And the September ISM Non-manufacturing index just reported in at 55.1 percent, up from 53.7 percent in August, thought the employment index decreased in September to 51.1 percent, down from 53.8 percent in August. Note: Above 50 indicates expansion, below 50 contraction.

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Graph: Calculated Risk

It should be noted that Wrightson-Icap reported the increase was accounted for by a 4.3-point rise in the subjective business activity index and by a four-point jump in the new orders component, leaving both of those measures at their highest levels since last winter. The gain in the subjective index is somewhat surprising in view of the uncertainty associated with the impending fiscal cliff, which so far does not appear to be weighing heavily on sentiment.

This should not be surprising as the so-called “confidence fairies” have been saying for years now that the budget deficit would cause interest rates to skyrocket, when instead they have fallen to record lows. Why? The high unemployment rate has kept consumers, who power 70 percent of economic activity, from consuming more. Hence the Fed’s QE3 program, which is specifically designed to not only revive housing, but put more people back to work.

So we see the Federal Reserve’s commitment to keep interest rates at historic lows for as long as it takes is already taking effect with even lower record interest rates. Fed Chairman Bernanke has even stated he wants to bring the unemployment rate down to more acceptable levels, such as 6 percent. This will not be easy, but with the housing market reviving, the Fed’s job will be easier.

Harlan Green © 2012