NEW YORK (
) -- 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
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.
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.
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