Mortgage Applications in U.S. Increase, Spurred by Lower Borrowing Costs

The number of mortgage applications in the U.S. increased last week as a drop in borrowing costs revived refinancing and purchases.

The Mortgage Bankers Association’s index increased 3.2 percent in the week ended Oct. 22, the Washington-based group said today. Purchases gained 3.9 percent while refinancing was up 3 percent.

An unemployment rate projected to hold above 9 percent through next year and expectations that prices may fall further threatens to undo the benefits of near record-low interest rates. At the same time, gains in refinancing are helping homeowners lower monthly payments, giving households extra cash.

“Housing is still in a state of flux,” Russell Price, a senior economist at Ameriprise Financial Inc. in Detroit, said before the report. “Prices and selling rates have likely seen the vast bulk of their declines for this cycle and what the housing recovery needs most right now is simply more time to heal.”

The decrease in purchases in the week ended Oct. 15 had brought the index to the lowest level since Aug. 13 and close to a 13-year low recorded in July.

The average rate on a 30-year fixed mortgage fell to 4.25 percent, matching the second-lowest on record, from 4.34 percent a week earlier.

At 4.25 percent, monthly payments for each $100,000 of a 30-year fixed loan would be about $492, or $47 less than a year ago when the rate was 5.04 percent.

Rates Fall

The average rate on a 15-year fixed loan fell to 3.67 percent from 3.74 percent, and the rate on a one-year adjustable decreased to 7.07 percent from 7.17 percent.

The share of applicants seeking to refinance a loan was little changed at 82.3 percent.

A surge in refinancing helped support the mortgage industry in the most recent quarter. Wells Fargo & Co., the biggest U.S. mortgage lender, received $194 billion of loan applications in the third quarter, the second-most in its history, Chief Financial Officer Howard Atkins said last week. About 80 percent were to refinance.

Even so, home lending in the U.S. will fall below $1 trillion next year to the lowest level since 1996 as mortgage rates rise and lead to less refinancing, the mortgage group said yesterday. An estimated $480 billion in mortgages for home purchases will be originated this year, the lowest since 1993, Jay Brinkmann, the group’s chief economist said.

Foreclosure Delays

Foreclosure moratoria at JPMorgan Chase & Co. and other banks, along with government investigations into faulty paperwork, threaten to further delay a recovery in home sales and prices as houses slated for repossession take longer to come to market.

The U.S. central bank and other regulators are “intensively” examining financial firms’ home-foreclosure practices and expect preliminary findings next month, Federal Reserve Chairman Ben S. Bernanke said Oct. 25 at a housing conference in Arlington, Virginia.

Fed officials have signaled they may start another round of unconventional monetary easing at their next meeting Nov. 2-3 to try to spur the economic recovery. Housing markets are “weak,” with “sluggish or declining” sales in many regions, the central bank said last week in its survey of regional districts for September and early October.

To contact the reporter on this story: Courtney Schlisserman in Washington at cschlisserma@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

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