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Jumbo Business Leads Rise in New Activity

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New mortgage activity inched higher this past week with jumbo loans leading the gain. The boost in jumbo business was fueled by a drop in the spread between jumbo and conforming pricing. Demand for government-insured loans and adjustable-rate mortgages, however, turned lower. A sudden surge in long-term Treasury yields today points to higher mortgage rates and lower overall demand next week.

The volume of pricing inquiries pulled by the average originator was up 2 percent from last week, putting the U.S. Mortgage Market Index from Mortech Inc. and Mortgage Daily for the week ended July 27 at 241. Compared to a year earlier, business increased 5 percent.

At the head of the pack were jumbo loan inquiries, which increased 8 percent from the week ended July 20. The share of total activity that was for loans in excess of $417,000 grew to 9.1 percent from 8.6 percent seven days earlier.

Helping to enhance demand for jumbo mortgages was the jumbo-conforming spread, which narrowed to 77 basis points from 85 BPS in the prior report.

Refinances, the next strongest category, increased by 3 percent from last week and were up by over half from the week ended July 29, 2011. Refinance share crept up to 75.1 percent from 74.6 percent a week ago and soared from a little more than half in the same week last year. This week’s total share reflected a 62.1 percent rate-term share and a 13.0 percent cashout share.

There was no week-over-week change in purchase activity, though purchase financing has plummeted 46 percent from 52 weeks prior.

Pricing inquiries for loans insured by the Federal Housing Administration fell 6 percent from the last report and were down 15 percent from this week in 2011. FHA share slipped to 9.9 percent from 10.7 percent and was down from 12.0 percent a year ago.

The worst-performing category this week was ARM activity, which fell 8 percent from last week. ARM business has tumbled 72 percent over the past 12 months. ARM share declined to 2.9 percent from 3.2 percent in the previous week. ARM share was down from 11.0 percent during the same week in the previous year.

Overall pricing inquiries strengthened on new lows for interest rates. The average 30-year fixed-rate mortgage was 3.554 percent in the latest report — the lowest on record since the Mortgage Market Index was launched in 2009. The 30 year was 3.631 percent a week earlier and 4.708 percent a year earlier.

Borrowers who opted for a 15-year loan this week were quoted rates that were 59 BPS better than 30-year rates. The spread between 15- and 30-year mortgages diminished from 65 BPS last week and 88 BPS a year prior.

It doesn’t look like rates will linger at their current lows based on an analysis of Treasury Market activity.

The yield on the benchmark 10-year Treasury note averaged 1.46 percent during the week covered by the Mortgage Market Index report — falling to a record low 1.43 percent on Wednesday — according to Treasury Department data

But investors retreated from Treasurys Friday as the stock market recovered on optimism about the European debt crisis — pushing the 10-year yield to 1.58 percent at today’s close. The movement in the 10-year yield suggests that rates could be around 12 BPS higher in next week’s report.

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