Home Purchase Mortgage Applications Drop Sharply in Response to FHA Premium Increases

By Kyle Chezum Updated on 4/27/2011

 

This week brings another aberration in the volatile home purchase mortgage application trend that has swung from unexpected highs to startling lows on an almost weekly basis since the beginning of the year.  This time, home purchase mortgage applications have dropped suddenly, just as the true home buying rush of spring is set to kick off.

The Mortgage Bankers Association tracked the negative news all week and released a report that showed a staggering 13.6% decrease in home purchase mortgage applications over the course of just seven days.  The total market index decreased by 5.6%.  At present, home purchase applications are at the lowest level they've been in over two months.

Government purchase loan applications dropped by a whopping 26.6% during the week.  This is the source of the sudden dip.  Michael Fratantoni, MBA vice president of research and economics, explained that the price of government financing has gone up considerably, making it much less attractive to buyers.  "Purchase applications fell last week, driven primarily by a sharp decrease in government purchase applications as new, higher FHA premiums went into effect," he said.  "This decrease reverses a 20% increase in government purchase applications over a four-week period, which was likely driven by borrowers attempting to beat this deadline."

The deadline has arrived.  With new, more expensive FHA insurance premiums required for all FHA loans, government financing is becoming a less valuable option for many borrowers.  Without this source of easier funding, the market may see fewer home purchases than were hoped for this spring.