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Last week was an unusually frenetic week for loan applications, according to new data from the Mortgage Bankers Association (MBA)—but the cause of this commotion appears to be based almost exclusively in the arrival of new regulatory demands on lenders and not on any identifiable improvement in either housing or the wider economy.
According to the MBA’s Weekly Mortgage Applications Survey for the week ending Oct. 2, the Market Composite Index increased 25.5 percent on a seasonally adjusted basis and 26 percent on an unadjusted basis from one week earlier. The seasonally adjusted Purchase Index increased 27 percent from one week earlier; the unadjusted Purchase Index also registered a 27 percent spike and was 49 percent higher than the same week one year ago.
Even the refi sector enjoyed a dramatic ascension, with the Refinance Index up 24 percent from the previous week. However, the refinance share of mortgage activity tumbled slight, dropping to 57.4 percent of total applications from 58 percent the previous week.
“The average loan size of applications in the weekly survey increased by 6.9 percent, driven by a 12.1 percent increase in the average size of refinances,” said Lynn Fisher, MBA’s vice president of research and economics.
So what sparked this sudden burst of upward mobility?
“There were several factors at play,” explained John Councilman CMC, CRMS, president of NAMB—The Association of Mortgage Professionals and president of Fort Myers, Fla.-based AMC Mortgage Corporation. “Certainly, everyone wanted to get all loans disclosed prior to the uncertainties of TRID. [The TILA-RESPA Integrated Disclosure (TRID) rule implementation that went into effect Oct. 3]. Any application on the fence would have been pushed to move forward. The other component was a sharp, but short-lived, drop in interest rates based on the second straight month of abysmal job creation, which may forestall a Fed rate increase for some time.”
Dr. Anthony B. Sanders, distinguished professor of Real Estate Finance at George Mason University in Fairfax, Va., half-agreed, putting the credit for the new data solely on the TRID implementation.
“No other economic information changed much and credit standards have not dropped enough to warrant a spike,” said Dr. Sanders.
Of course, the unlikely explosion of loan application volume seemed very out of season for the autumn home purchasing environment.
“Nobody buys homes in October,” said Logan Mohtashami, an Irvine, Calif.-based senior loan manager at AMC Lending and a financial blogger at LoganMohtashami.com. “Purchase application numbers have been very, very low.”
Mohtashami added that the implementation of the new TRID requirements created an exaggerated sense of beat-the-clock with originators. “Think of TRID as a homebuyer tax credit,” Mohtashami said. “There was a big push for anything that was in the works to get done before TRID took effect.”
Grant Stern, president of Bay Harbor Island, Fla.-based Morningside Mortgage Corporation, agreed, noting that mortgage professionals wanted to clear their proverbial plates before facing the potential headaches of a new regulatory regimen.
“Making the paperwork more perfect isn’t going to change the problems we have in the mortgage world,” Stern said, glumly.
But should this flurry of applications have been seen as a surprise? Mark A. Calabria, director of financial regulation studies at the Cato Institute in Washington, D.C., experienced a bit of déjà vu with the MBA’s numbers.
“We've seen this every time RESPA forms have been changed - a big push to get loans under the wire,” Calabria said. “It’s to be expected.”
But, still, the 25 percent figure is quite amazing. For Edward Pinto, co-director and chief risk officer of the International Center on Housing Risk at the American Enterprise Institute in Washington, D.C., it might be a bit too amazing.
“A 10 percent or 15 percent increase seems more likely,” Pinto said. “But 25 percent is very large. I am suspicious that it is a bit of a statistical fluke.”
And Bill Gassett, a real estate agent at Hopkinton, Mass.-based RE/MAX Executive Realty, is wondering where all of this activity is taking place.
“I am not seeing that much of a difference in market activity,” Gassett said. “I haven’t seen anything driving an uptick in the number of offers being written.”