uploads///MBAs market composite index

Banks Feel the Pinch of Fewer Mortgage Applications in Mid-May



Mortgage applications decline

Applications for US home mortgages fell in the week ended May 15, according to data from the MBA (Mortgage Bankers Association). The MBA’s seasonally adjusted index of mortgage application activity, which includes both refinancing and home purchase demand, fell 1.5% that week. The decline was driven by a rise in fixed 30-year mortgage rates. The rates averaged 4.04% in the week, the highest they’ve been since December 2014.

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The MBA’s survey covers over 75% of all US retail residential mortgage applications. Respondents include mortgage bankers, commercial banks, and mutual savings banks or savings and loan associations. The above graph shows the MBA Market Composite Index, which is a measure of mortgage loan application volume.

Home purchase demand declines

The MBA’s seasonally adjusted index of refinancing applications rose 0.3%, while the loan applications for home purchases fell by 3.7% to the lowest level since April. Applications for home purchases are a leading indicator of home sales.

The refinance share of total mortgage activity rose to 52% of applications, up from 51% the week before.

“Mortgage rates increased last week, and Treasury rates increased to a recent high at mid week before falling at the end of the week. Overall purchase activity fell for the week, along with conventional refinance volume, but government refinance volume increased. The level of purchase applications remained 11 percent higher than the same week last year, but the drop this week may indicate borrowers being wary of the recent run up in mortgage rates,” said Mike Fratantoni, MBA’s Chief Economist.

Impact on banks

Fewer applications indicate less lending in the residential segment, a negative indicator for banks active in this space.

All big banks, including J.P. Morgan (JPM), Citigroup (C), Bank of America (BAC), Wells Fargo (WFC), US Bancorp (USB), and BB&T (BBT), have significant residential real estate portfolios. Growth in this segment will impact these banks as well as the Financial Select Sector SPDR ETF (XLF). The banking sector makes up ~37% of XLF.


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