Applications for government-insured loans took a plunge last week in overall mortgage volume. Total mortgage applications last week fell a total of 3.2 percent, on a seasonally adjusted basis, according to the Mortgage Bankers Association.
The volume was 18 percent lower than it was during the same week last year. The most notable drop was a 13 percent drop in FHA applications. This drop was a direct result of the Trump administration reversing a cut in the FHA’s annual mortgage insurance premium. The administration reversed the cut just hours after the inauguration took place.
The cut that was reversed by the Trump administration was the Obama administration’s last major policy act. It was set to decrease the monthly payment for thousands of new, lower-income borrowers. The mortgage industry saw an immediate increase in FHA applications following the announcement of the cut, lenders have reported that now many of those applications have been withdrawn.
Ben Carson, Trump administration’s nominee for secretary of Housing and Urban Development, said he wanted to examine the cut further. He also wanted to take a further look into the fiscal health of the FHA’s insurance fund, and make sure a cut in premiums wouldn’t increase taxpayer risk.
“Following the decision to suspend a proposed decrease in the FHA mortgage insurance premium, FHA refinance applications dropped more than 25 percent, while FHA purchase applications fell almost 6 percent,” said Michael Fratantoni, chief economist for the MBA.
Refinancing applications fell 1 percent for the week. The data is seasonally adjusted, but they are nearly 32 percent below year-ago levels. Purchase applications fell to 6 percent this week and are only 2 percent higher than they were a year ago. The price of homes continues to increase and the affordability continues to decrease. Despite these factors, the demand for houses is still rising.
“We do expect that home sales will grow this year relative to 2016, although lack of inventory remains a constraint in many markets,” Fratantoni said.
As of this week, mortgage rates have not moved that much. However, the potential for volatility is on the rise, given more economic data out later this week.
“Although there’s essentially no chance that the Fed will hike rates at this meeting, investors will nonetheless look for clues about the Fed’s thinking based on subtle changes in the text of the statement,” wrote Matthew Graham, chief operating officer of Mortgage News Daily.