Daily Economic Update: Mortgage Applications

In each Economic Update, the Research staff analyzes recently released economic indicators and addresses what these indicators mean for REALTORS® and their clients. Today’s update discusses the latest mortgage applications data.

• Seasonally adjusted applications to purchase homes surged 11.9% in the week ending January 10th compared to the prior week. However, this improvement reflects a technical adjustment in the prior week as well as a rush to submit applications in advance of a major regulatory change in the current week.
• The Qualified Mortgage rule went into effect for all applications received on or after January 10th. The “QM” rule introduced stronger underwriting, fee and pricing protections for consumer, but those protections could also raise costs or limit credit access for some consumers.
• The average rate for a 30-year fixed rate mortgage eased two basis points from the prior week to 4.51%.
• New purchase applications for conventional and government financing rose, by 12.6% and 9.0%, respectively.
• In a separate data report released this morning, the average FICO scores for conventional and FHA financed, purchase mortgages closed in December were 756 and 690, respectively. Though traditional, safe underwriting standards have been restored since the boom period and risky products like NINJA loans and low or no documentation loans eliminated, credit overlays remain significantly higher than the pre-boom period when average FICOs were 30 to 40 points lower for conventional and FHA mortgages. Several important reforms and regulatory changes remain that have kept conditions tight.
• Mortgage applications shot upward this week, reversing some of December’s weakness. However, this improvement is likely due to a rush to submit applications in advance of new regulations. Thus, purchase applications in subsequent weeks could suffer as a result of demand having been pulled forward. The impact of the new regulations will largely be smoothed out in time as most originators are already compliant with the new underwriting standards and understanding of limitations and legal liabilities improves with time, but the market faces adjustments in the near term.