Record-Low Mortgage Rates Spur Refi Activity

Record-Low Mortgage Rates Spur Refi Activity
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(Mortgage article updated with analyst commentary and foreclosure information.)

NEW YORK, N.Y. (

TheStreet

) -- Mortgage applications rose for the first time in six weeks last week as

mortgage rates

fell to record lows.

Mortgage loan applications spiked 14.6% on a seasonally adjusted basis in the week ended Oct. 8, the Mortgage Bankers Association said early Wednesday.

Refinancing applications soared 21% from the previous week. New-home purchase loan applications decreased by 8.3% from the prior week and were 37.1% lower than in the year-earlier week.

A total of 83.1% of all loan applications last week were for refinancing existing mortgages, up from 78.9% in the prior week and the highest refinance share since January 2009.

Record-low and near-record-low mortgage rates failed to spark robust demand for housing in recent months, but clearly had an effect on homeowners looking to lower their monthly payments through refinancing.

The average rate on a 30-year fixed mortgage fell to 4.21%, from 4.25% the week earlier. The 30-year contract rate is the lowest recorded in the survey, while the previous low was observed last week.

"After five weeks of steadily declining rates to yet another new low, borrowers who had been on the fence jumped off, which factored into refinance activity surging more than 20%," said Michael Fratantoni, MBA's vice president of research and economics. "Refinance application volumes are now close to the highest level this year. Purchase activity remains generally weak, but applications for conventional purchase mortgages are now at their highest level since the beginning of May following the expiration of the

tax credit

."

"Last week saw a big jump in applications for FHA loans to purchase homes. We surmised that this was due to potential buyers wanting to beat the stricter FHA standards that went into effect October 4th. This conjecture was confirmed by the fact that this week FHA applications fell back to a level closer to the average seen over the past four months," Fratantoni added.

The U.S. housing market continues to struggle and has been under tremendous pressure for some time. Demand fell further after the

expiration of federal tax credits for homebuyers earlier this year

.

Just as the subprime mortgage troubles expanded into a total housing market downfall, the latest scandal in the home loan industry is expanding into a nationwide political firing line aimed -- once again -- toward the banks due to

problems with foreclosure filings

.

Stifel Nicolaus analyst Chris Mutascio noted Tuesday that while the call for a nationwide foreclosure moratorium is "growing in seemingly every political circle in recent days," it is undecided if the banks should take full blame.

"Is this just political rhetoric from politicians once again blaming the banks for all the ills upon us or are there some merits to it? We are not sure we really know the answer to that question yet, but let's keep one thing in mind during the debate. If there is any way a bank can keep a borrower in his/her home, it behooves the bank to do so from an economic perspective, in our view," the Stifel note said.

Citigroup

(C) - Get Report

continues to foreclose on homes as other large banks have temporarily suspended foreclosures. Banks have been accused of a process known as "

robosigning

."

Wells Fargo

(WFC) - Get Report

said it has no plans to initiate a moratorium on foreclosures, saying late Tuesday its foreclosure affidavit process is "sound."

"Our affidavit procedures and daily auditing demonstrate that our foreclosure affidavits are accurate," Wells Fargo said in a statement. The bank said it released the statement in response to media inquiries.

Bank of America

(BAC) - Get Report

said last week that it was halting foreclosures in all 50 states.

JPMorgan Chase

(JPM) - Get Report

,

PNC

(PNC) - Get Report

and

Ally Financial's

GMAC Mortgage have also halted foreclosures in select states.

"Many homeowners are waiting for the elections next month hoping that more certainty about taxes, bank regulations and other factors will give Americans confidence to move forward with important monetary decisions," Alan Rosenbaum, president of Guardhill Financial, a New York-based mortgage banker and brokerage company, told

Reuters

.

"The lower interest rates on mortgages have spurred refinancing and purchase activity, though not currently as much as hoped for," he said, adding that "the government states that they want to keep rates low so that homeowners will buy and refinance to spur the economy, but they continue to keep underwriting guidelines too strict for most Americans to qualify for a mortgage."

Stocks in the homebuilding sector were mostly higher Wednesday. The

SPDR S&P Homebuilders

(XHB) - Get Report

and

iShares Dow Jones US Home Construction

(ITB) - Get Report

, exchange-traded funds that tracks the sector,each added 0.8% at midday.

Shares of

Hovnanian Enterprises

(HOV) - Get Report

bid up 1%,

D.R. Horton

(DHI) - Get Report

0.9% and

Lennar

(LEN) - Get Report

0.5%.

PulteGroup

(PHM) - Get Report

shares were flat at midday.

KB Home

(KBH) - Get Report

outpaced the group, gaining 2.1%.

-- Written by Miriam Marcus Reimer in New York.

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