Refinance Applications Decrease While Home Purchase Applications Spike

By Kyle Chezum Updated on 4/6/2011

The Mortgage Bankers Association reported a not insignificant decline in mortgage applications this past week.  The industry group reported a 2% decrease in total mortgage applications.  Most of the decline was due to a significant drop in refinancing activity.  Home purchase mortgage applications actually increased, but not by a large enough margin to counteract the refinance drop.

The increase in home purchase applications was probably entirely unrelated to the recent mortgage rate changes.  The past week saw an increase in average mortgage rates up to about 4.93%, the highest they've been in a while.  Earlier in the year, mortgage rates rose close to the 5% mark and sparked discussion that the days of low cost financing were over.  A dip soon after brought an end to such talk.  But now, the upward trend is repeating itself, and this time, it may be for good.

It's more likely the home purchase mortgage application uptick was due to a rush to beat the increase in required mortgage insurance premiums imposed by the Federal Housing Administration.  The mandatory insurance increase took effect on April 1st.

The change imposed by the FHA hasn't made it easier for buyers and particularly first time home buyers to get the financing they need to purchase homes, a process that is already famously difficult.  We'll see whether the slight increase in home purchase loans holds.  More likely, the Mortgage Bankers Association will report a further decrease this coming week as interest rates continue to rise.