Interest Rates Rise, Mortgage Applications Increase during this Foreclosure Crisis

Interest rates are now at its highest since early December but the demand for mortgage has even increased by 8.6 percent. This may be due to the still high need to refinance delinquent loans of foreclosure-troubled homeowners.

A sudden increase in the Mortgage Bankers Association’s seasonally adjusted index of loan application came out this January 30. New purchase and foreclosure-refinancing loans increased by 8.6 percent to 795.4 after last week’s 38.8 percent plunge.

Three weeks ago, the 30-year fixed-rate was at its lowest at 4.89 percent, but now it averages at 5.28 percent.

This may not be good for the economy. The foreclosure-stricken housing industry is not yet ready for increasing mortgage rates. Home sales have not yet improved significantly.

Mortgage rates greatly affect home sales as seen in last December where the pending home sales index had its first increase of 6.3 percent.

Seasonally adjusted purchase index dropped to by 11.2 percent and is now at 261.4 while the four-week moving average of mortgage applications is down by 9.2 percent. Mortgage Bankers seasonally adjusted index of refinancing applications increased by 15.8 percent to 3,906.3. This shows that more loans are used to refinance the to-be-foreclosed homes.

This mortgage rate increase is very untimely. Low mortgage rates would have attracted home buying even with home price deflation and increasing unemployment.

The rate increase may be linked to Treasury yields that also increased on fear of rising debt issuance to pay for a swelling budget gap and federal foreclosure relief programs.

Ever since November’s Federal Reserve plan to buy $500 billion mortgage securities as foreclosure relief and also buy out $100 billion worth of debt issued by Fannie Mae, Freddie Mac and the Federal Home Loan Banks, the 30-year fixed rates has been falling.

Adjustable-rate mortgage share of activity fell from 2.4 to 2.1 percent.

15-year fixed-rates are now 5.15 percent, up from last week’s 4.98 percent. Even one-year ARMS increased to 6.09 percent from 5.96 percent.

Rate increase is not good for our struggling economy, yet here it is.