Mortgage Originations to Peak in Q3


Mortgage Daily Staff

                                                 April 16, 2009

Mortgage rates fell though 1003s waned. But even as rates are expected to rise, applications should pick up steam based on one projection that has production peaking next quarter.

Freddie Mac reported that the average 30-year fixed-rate mortgage fell 5 basis points from a week earlier to 4.82% in its Primary Mortgage Market Survey for the seven days ending April 16. A year earlier, the 30-year averaged 5.88%.

In its April economic outlook released Tuesday, Freddie predicted that the 30-year will average 4.9% this quarter and steadily rise to 5.5% by the second-quarter 2010.

Down 6 BPS from the prior week, the average 15-year fixed-rate mortgage was 4.48% in Freddie’s survey.

An indicator of where fixed mortgage rates are headed, the 10-year Treasury yield, was 2.801% early today, falling from 2.889% a week ago.

The five-year Treasury-indexed hybrid adjustable-rate mortgage averaged 4.88%, down from 4.93% the previous week, Freddie reported.

But the one-year Treasury-indexed ARM saw its average rise 8 BPS to 4.91% in Freddie’s survey. The one-year is forecasted to average 4.8% this quarter and reach 5.0% by the end of the year. The underlying index, the yield on the one-year Treasury, was 0.54% yesterday, down from 0.59% seven days earlier, the U.S. Department of the Treasury reported.

Another ARM index, the six-month London Interbank Offered Rate, fell to 1.66% yesterday from 1.70%, reported. LIBOR is the index on many subprime ARMs.

ARMs accounted for 1.5% in the Weekly Mortgage Applications Survey for the week ending April 10 from the Mortgage Bankers Association, unchanged from a week earlier.

ARM share of originations is expected to rise from 4% this quarter to 8% by the middle of next year in Freddie’s forecast.

MBA reported that overall 1003s were 11% lower on a seasonally adjusted basis, pulling its Market Composite Index down to 1113.2. The decline reflected last week’s rise in interest rates. Purchase applications were 11% lower and government activity fell 8%.

Application volume is likely to increase in the third quarter, when Freddie has projected loan originations peaking at $870 billion. But application activity will deteriorate as projected residential originations tumble by nearly half to $480 billion in the first-quarter 2010.

Refinance applications were down 11% in MBA’s survey. Still, refinances represented 78% of the latest week’s activity, virtually unchanged from the previous week. Freddie said refinances are projected to account for 71% of second-quarter loan applications and more than two-thirds of all applications this year. But by next year, refinance share will drop to 45%.

Mortgage Daily Staff

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