By: Favian ClaiThe Mortgage Bankers Association released their Weekly Mortgage Application survey for the week ending October 30th, 2009. For the first time in four weeks, applications went on the rise.
The Market Composite Index had an 8.2% increase from the week prior. The MCI is a measure of mortgage loan application volume.
The Refinance Index has an increase in 14.5% from the previous week.
The average rate of interest for a 30-year fixed-rate-mortgage also decreased to 4.97 from 5.04 with a point decrease to 0.78 from 1.25. For those looking for 15-year fixed-rate mortgages, the rates decreased to 4.33% from 4.53% however, points increased to 1.33 from 0.78. Lastly, those seeking a one-year adjustable-rate mortgage had rates that increased to 6.83% from 6.79% with a marginal increase in points to 0.31 from 0.29.
Federal Reserve Chairman Ben Bernanke is preparing to stop the central bank's purchase of mortgage-backed securities in March 2010, which may throw a wrench into the slowly recovering market.
Bernanke feels strongly that by March, it will be time for the private investors to step in and start making the purchases in place of the Government, according a report by Bloomberg.
Much part of the increase in mortgage loans and low interest rate have been due to the Fed. This year, they have bought over $977 billion in mortgage-backed securities, reported by Morgan Stanley.
Also assisting in the mortgage market recovery, has been less securitization of mortgages thanks to the disappearance of the riskier, subprime-type mortgage loans, and banks are more reluctant to lend. The thinner supply of new mortgages has also helped in compressing yields.
While many analysts expect mortgage rates to spike high after the Fed pulls out of the market, Robert Tipp, Chief Investment Strategist at Prudential Fixed Income Management believes that "the mortgage rate may drifter higher but not markedly so." Part of his belief in this stems from a larger trend that investors have begun to move money out of money-market funds and into other assets, including slowly tip-toeing out the risk zone and into Treasury securities.
Wells Fargo & Co.'s (WFC) has been re-writing a lot of mortgages into long-term interest-only loans in hopes to save homeowners from default called "Pick-A-Pay".
The bank is taking a gamble of more than $107 billion in debt tied to their option-adjustable rate mortgages, one that allowed borrowers to make small monthly payments in return for increasing their mortgage balance.
Their hopes is it that by deferring balances for as long as six to ten years, with an eventual rise in housing prices, along with a rise in consumers' income, that it will eventually combine to cover the bank's billions in debt.
Wells Fargo says most borrowers are motivated to make their payments on their mortgage even if they owe far more in debt than what their homes are worth. One motivation mentioned is kids and schools .
Wells Fargo now expects their Pick-A-Pay loans to generate fewer losses than they originally forecasted late last year. These loans make up 10.8% of their average total loans in the third quarter.
While Wells Fargo never offered the option-adjustable rate mortgages, they had inherited about $119.7 billion of them at a 20.4% discount when it purchased Wachovia Corp. in 2008.
They have so far written $2 billion off Pick-A-Pay balances for homeowners, or about $46,000 per modified loan. They have modified about 43,500 of these loans so far this year as of September and they said the program has been highly effective at keeping homeowners in their homes.
