· Mortgage applications fell 1.5% in the week ended August 15,
following a like decline the week before, together basically erasing a 2.8%
increase in the August 1 week. This "Market Composite Index"
stood at 419.3 in the latest week, where the number of applications on March 16,
1990 is set equal to 100; this is down 34.6% from a year ago. Applications for
loans to purchase houses edged down 0.4% in the week and are off 8.4% from
July's weekly average and 28.9% from the year earlier; those to refinance old
loans decreased 3.7% to 1034.5, down 22.2% from July and 42.7% below a year ago.
· These data from the Mortgage Bankers Association are included
in Haver's SURVEYW database. Other analytical information in this
application survey tells that refinancing presently constitutes only 34.8% of
the number of applications and 32.4% of their dollar value.
· The mortgage interest rate situation is also notable.
With the turmoil among Fannie Mae, Freddie Mac and originating lenders and
rising delinquencies by borrowers, credit spreads remain wide throughout
financial markets, keeping interest rates elevated on all but short-term, highly
liquid debt. The most dramatic illustration in these MBA data comes from
the 1-year ARM rate versus the 1-year Treasury. The ARM rate itself was
7.07% last week, higher than the fixed rate on 30-year mortgages, 6.47%.
The spread on the ARM over the 1-year constant maturity Treasury was 4.89%; the
spread of the 30-year mortgage over the 10-year Treasury was 2.56%. For
the vast majority of the history of these MBA mortgage rate series (since 1990),
the spread was larger for the longer-term rates, as one might intuit. But
since last August, this relationship, along with many other risk measures, has
been turned on its head, and sharply so. There is today far more perceived
risk in short-term mortgage instruments than long-term.