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Mortgage Applications Up But Banks Still Making It Tough

Agnus Dei Farrant |
September 14, 2012 | 5:16 p.m. PDT

Deputy Editor

 

(Creative Commons).
(Creative Commons).
September opened on a positive note for mortgage purchase applications nationwide with a rise of 8 percent in the first week, indicated by Mortgage Bankers Association (MBA) data released Wednesday.

Despite many signs that the housing market is healing, however, home buyers may still find banks holding on tight to their money, making loans hard to get.

A recent Federal Reserve survey on bank lending practices showed that most domestic banks haven’t loosened their lending standards for residential mortgages even with demand rising over the past three months. And on so-called non-conventional loans, such as particularly large mortgages, banks reported tightening standards somewhat recently, the Fed said. 

“There is no question credit standards were more relaxed than they should have been in the lead-up to the housing downturn, and have since tightened,” MBA senior public affairs specialist Matthew Robinson said in an email. “MBA is working hard to make sure there is not an overcorrection on the part of policymakers so that there is credit available for qualified borrowers.”

For some potential buyers, banks’ nervousness about lending means mortgage rates near record lows are no help. MBA said the average rate on 30-year fixed mortgages was 3.78 percent at the end of August, down from 3.8 percent a week earlier.

The MBA measures weekly loan demand with two indexes - one for home purchases and another for refinancing. The purchase index plunged nearly 70 percent from its peak in 2005 to 2010 with the housing bust, and the weekly demand figures have mostly remained at depressed levels for the last two years.

Through August, however, the MBA saw two straight weeks of sizable gains with the month ending in a 0.8 percent decline. 

But applications remain heavily weighed toward refinances. Eighty percent of mortgage applications currently are for refinances, according to California Mortgage Bankers Association’s communications director, Dustin Hobbs.

The percentage of applications that result in approved loans, called pull-through rates, is at about 50 percent for refinances and 60 percent for purchases, Robinson said. Refinancing applications also rose in the latest week, up 12 percent.

The MBA, however, predicted refinances will fall in 2013.

“We expect $1.4 trillion in originations this year and a little more than $1 trillion in 2013,” Robinson said. 

The MBA purchase index provides a gauge of not only the demand for housing but economic momentum as well, experts say. Though home prices have been rising, Hobbs said some markets have seen this trend because the supply of homes for sale is very small right now.

“The purchase side has been bogged down a bit by inventory, home prices and that’s more driven by unemployment and the economy,” Hobbs said.

“We have to see a measurable improvement in the supply of homes, and the state of the economy, frankly. I think we’d have to see strong and lasting gains in employment, and increases in average wages would be helpful.”

The housing market is in a better place than it was a couple years ago in terms of purchase activity, home values and foreclosures, Hobbs said.

“When you have a bit more predictable and stable market like we have now, even though there’s still a lot of room for improvement, it’s much more stable and predictable than it was even just a few years ago. I think you sort of have the ingredients for a return of the purchase market but we’re just still not there yet.”

 

Reach Deputy Editor Agnus Dei Farrant here.



 

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