Mortgage Applications Rise
Mortgage applications increased 5.3% from one week earlier, according to data from the Mortgage Bankers Association’s Weekly Mortgage Applications Survey for the week ending April 15, 2011.
The Market Composite Index, a measure of mortgage loan application volume, increased 5.3% on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index increased 5.9% compared with the previous week.
The Refinance Index increased 2.7% from the previous week. The seasonally adjusted Purchase Index increased 10.0% to its highest level since December 3, 2010, driven largely by a 17.6% increase in Government purchase applications. The unadjusted Purchase Index increased 10.9% compared with the previous week and was 11.4% lower than the same week one year ago.
Purchase application volume jumped last week largely due to another sharp increase in applications for government loans. Borrowers were likely motivated to apply for loans before the scheduled increase in FHA insurance premiums, said Michael Fratantoni, MBA’s Vice President of Research and Economics. “Refinance activity increased somewhat, as rates dropped to their lowest level in a month towards the end of the week.” The four week moving average for the seasonally adjusted Market Index is down 2.9%.
The four week moving average is up 2.5% for the seasonally adjusted Purchase Index, while this average is down 5.7% for the Refinance Index. The refinance share of mortgage activity decreased to 58.5% of total applications from 60.3% the previous week. This is the lowest refinance share since May 7, 2010. The adjustable-rate mortgage (ARM) share of activity increased to 6.5% from 5.9% of total applications from the previous week.
For Fannie/Freddie lenders to approve a mortgage to finance purchase of a condo, a large majority of the units — 70% — have to be already sold or under contract to individuals. Before 2009, the threshold was 51%.
If more than 30% are still owned by the company that built the complex or sponsored its conversion from rental units, the mortgage will be denied, no matter how qualified the buyer is. Fannie and Freddie have also increased their emphasis on income relative to debt. If someone’s total debt payments exceed 45% of income, the mortgage will be denied. In 2009, the limit was 55%.
Some borrowers lost homes to foreclosure but then diligently rebuilt their financial health. Despite high credit scores, ample assets and income and steady employment, lenders are not allowed to finance their Fannie/Freddie mortgages if their foreclosures happened any time within the past seven years.
Fannie and Freddie Requirements
Before spring last year, the wait time was five years. Fannie and Freddie also have gotten stricter in how they factor in missed payments on credit cards, auto loans and other debts in which the balances do not have to be paid off every month. They used to be okay with a missed payment or two. Now, one missed payment will hit your debt-to-income ratio, because banks will add 5% of your outstanding loan balance to the debt part of the calculation.
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