Coronavirus Pandemic Cause Mortgage Applications to Fall 8.4%

Real Estate In-Depth | March 2020

WASHINGTON—Mortgage applications decreased 8.4% during the week ending March 13 from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey released on March 18.

The Market Composite Index, a measure of mortgage loan application volume, decreased 8.4% on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the index decreased 8% compared with the previous week. The Refinance Index decreased 10% from the previous week and was 402% higher than the same week one year ago. The seasonally adjusted Purchase Index decreased 1% from one week earlier. The unadjusted Purchase Index remained unchanged compared with the previous week and was 11% higher than the same week one year ago.

“The ongoing situation around the coronavirus led to further stress in the financial markets late last week, with unprecedented volatility and widening spreads. This drove mortgage rates back up to their highest levels since mid-February and led to a 10% decrease in refinance applications. However, refinance activity remains very high. Excluding the spike two weeks ago, the index remained at its highest level since October 2012, and refinancing accounted for almost 75% of all applications,” said Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting.

“The Federal Reserve’s rate cut and other monetary policy measures to help the economy should help to bring down mortgage rates in the coming weeks, spurring more refinancing,” he added. “Amidst these challenging times, the savings that households can gain from refinancing will help bolster their own financial circumstances and support the broader economy.”

Kan also noted that purchase activity was flat but remained more than 10% higher than a year ago.

“The purchase market was on firm footing to start the year and has so far held steady through the current uncertainty. Looking ahead, a gloomier outlook may cause some prospective homebuyers to delay their home search, even with these lower mortgage rates,” he said.

The refinance share of mortgage activity decreased to 74.5% of total applications from 76.5% the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 6.4% of total applications.

The FHA share of total applications increased to 7.3% from 6.9% the week prior. The VA share of total applications increased to 14.5% from 13.1% the week prior. The USDA share of total applications increased to 0.4% from 0.3% the week prior.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($510,400 or less) increased to 3.74% from 3.47%, with points increasing to 0.37 from 0.27 (including the origination fee) for 80% loan-to-value ratio (LTV) loans. The effective rate increased from last week.

The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $510,400) increased to 3.77% from 3.58%, with points increasing to 0.32 from 0.20 (including the origination fee) for 80% LTV loans. The effective rate increased from last week.

The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA increased to 3.71% from 3.57%, with points increasing to 0.28 from 0.25 (including the origination fee) for 80% LTV loans. The effective rate increased from last week.

The average contract interest rate for 15-year fixed-rate mortgages increased to 3.10% from 2.90%, with points increasing to 0.37 from 0.26 (including the origination fee) for 80% LTV loans. The effective rate increased from last week.

The average contract interest rate for 5/1 ARMs increased to 3.19% from 3.02%, with points decreasing to 0.19 from 0.25 (including the origination fee) for 80% LTV loans. The effective rate increased from last week.

The MBA commended actions taken by the Federal Reserve and Congress in dealing with the coronavirus and its impact on the financial markets.

MBA President and CEO Bob Broeksmit, CMB, said, “MBA commends the recent actions and ongoing efforts taken by the administration, Federal Reserve, and Congress to help both consumers and businesses during this difficult time. The industry can be most helpful to many homeowners by more efficiently refinancing their mortgages, thereby reducing their monthly payments. This can be an important component of the economic stimulus, and we are working to remove hurdles that could impede that.”

He noted that the finance sector is focused on efforts to streamline policies and procedures that will allow lenders to assist borrowers suffering hardships through this current situation by providing forbearance relief and suppressing negative credit reporting for example.

“To enable the industry to deliver both economic stimulus and hardship relief, a number of issues need to be addressed—including streamlined appraisal processes, potential liquidity backstops for servicers, increased adoption of remote online notarization, and solving title insurance issues given the growing number of county recorder office closings,” Broeksmit said. “To achieve this, we are working with a broad range of stakeholders, including regulatory agencies and the GSEs, to help mitigate economic impacts as Americans are encouraged to limit their social interactions.