WASHINGTON-Mortgage applications soared last week, by the largest amount on record, as the government's latest rescue bid pushed rates significantly lower, providing a new stimulus to credit unions and other lenders just when they need it.
Potential buyers were attracted by the lower rates, which fell an average of more than 50 basis points after the Federal Reserve announced last week it would buy up to $600 billion in agency-backed mortgage securities.
The Mortgage Bankers Association reported its index of mortgage applications, which includes both purchase and refinance loans, for the week ended Nov. 28 soared by a record 112% to 857.7, the highest reading since the week ended March 21 when it reached 965.9.
"If you have rates go down, wouldn't you refinance?" asked Tun Wai, chief economist for NAFCU, who noted the additional moves by the government to lower rates and spur lending.
The MBA reported that average rates on 30-year, fixed-rate loans plunged a whopping 0.52% last week to 5.47%, the largest drop since 1990 when the MBA started conducting the weekly survey. That compares to an average of 5.82% a year ago, and is the lowest rate for the 30-year loan since the week ended June 24, 2005.
Average rates for 15-year, fixed-rate mortgage rates fell by 65 basis points last week to 5.13%, and rates on one-year ARMs declined by 26 bps, to 6.61%
A Major Boon
While providing a major stimulus to consumers, the flood of new mortgage activity is expected to be a major boon for credit unions, if it continues, according to Bill Hampel, chief economist for CUNA. He noted the increase in origination fees, but also the prepayment of distressed mortgage securities at par caused by a refinance splurge, potentially wiping out millions of dollars in credit union losses.
Recent actions like last week's Fed move, Hampel said, seems to be pushing down rates to help spur economic activity. "The government appears to be trying to restore the normal relationship between the 10-year Treasury and conforming mortgages," he said. He explained the normal spread is about 200 basis points, suggesting that with the 10-year Treasury at 2.66% last Wednesday, rates could come down another 50 bps.
His comments came as the Federal Reserve and Treasury were preparing yet another initiative aimed at lowering rates. The plan calls for Fannie Mae and Freddie Mac, now run by the federal government, to pledge to buy up all new first mortgages made under a certain rate, as low as 4.5%. The plan is expected to be unveiled as soon as this week.
"The Federal Reserve buying mortgage backed securities; Treasury directing Fannie Mae and Freddie Mac to get involved; all of this is going to have an impact in the long term," said NAFCU's Wai. "There's a lot going on in the marketplace, in terms of government action."
