NEW YORK ( TheStreet) -- Mortgage applications decreased 4.6% from a week earlier, according to data from the Mortgage Bankers Association's weekly survey.
The decline in the week ending Aug. 16 was driven by a drop in refinance activity as rates moved higher. The Refinance Index decreased 8% from the previous week, just as the rate on the 30-year fixed-rate conforming mortgage moved up from to 4.68% from 4.56%.
The Refinance Index is down 62% from its recent peak reached in early May, when the 30-year rate was as low as 3.5%.
The seasonally adjusted Purchase Index rose 1% from a week earlier. Unadjusted, the index dipped 0.4% compared with the previous week and was 5% higher from a year ago.Refinance as a share of total mortgage activity decreased to 62% from 63% a week earlier. The adjustable-rate mortgage share of activity increased to 6% of total applications. The drop in refinancing activity could hurt mortgage banking revenues for the big banks. Unusually high refinance activity had buoyed profits for banks such as Wells Fargo (WFC - Get Report), U.S. Bancorp (USB - Get Report) and Fifth Third (FITB - Get Report) over the past few years. According to a recent report by LPS, with the rise in interest rates, the pool of borrowers who can still refinance shrunk 33% from 8.9 million in March to 5.9 million in June, representing about 12% of all active loans that can still be refinanced. LPS determines the pool of eligible borrowers by including those who have at least 20% equity in their home, have a credit score of greater than 720 and pay an interest rate of more than 5% on their mortgage. Banks have however been prepared for the decline in refinance activity. JPMorgan Chase (JPM - Get Report) CFO Marianne Lake warned last quarter that the refinance market could drop 30% to 40% if rates stayed at these levels or moved higher. -- Written by Shanthi Bharatwaj in New York. >Contact by Email. Follow @shavenk