Mortgage Activity Corrupted by Unholy FHA Premium Increase

Mortgage activity declined through the week ended April 22. While the pre-Easter period is a spur for consumer spending, it's a drag on real estate and mortgage activity. However, an unholy hike in FHA premiums played an even more pivotal role in the drop-off.

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Mortgage Activity Corrupted by Unholy FHA Premium Increase

The Mortgage Bankers Association reported on mortgage activity for the week ending April 22, 2011. The period that encompasses Passover for Jews and Holy Week for Christians may be a spur for consumer spending, but it delays home shopping. Thus, mortgage activity carried an unnatural weight against it in this latest reporting period, especially since Good Friday was a holiday for many.

The MBA reported that its Market Composite Index of mortgage activity decreased by 5.6% on a seasonally adjusted basis. We would normally look toward Holy Week as the reason behind the decrease, but that's where analysis reveals there was an even more important factor at play last week.

Purchase Activity, or the index measuring mortgages taken out on home purchases, fell by 13.6% on a seasonally adjusted basis. Behind this, government sponsored purchase applications dropped 26.6%, as an increase in FHA premiums came into effect. Over recent weeks, informed home buyers moved to purchase before the premium hike, driving government purchase applications up 20% through the four weeks leading up to the change. Thus, some of the natural flow of activity was pulled forward and drawn out of this last week's activity and likely from several weeks to come.

The Refinance Index was far less active through the period, slipping 0.6% from the previous week. Contracted rates on 30-year and 15-year fixed rate mortgages were relatively unchanged through the period, decreasing to 4.8% (from 4.83%) and 4.03% (from 4.07%), respectively. The big drop-off in purchase activity helped to lift back up the refinance share of overall activity, to 61.6%, from 58.5%.

In conclusion, this latest bit of mortgage activity data is a weak resource for the forecasting of the real estate market. It was far too corrupted by nonrecurring factors, and the change in FHA premiums may affect several more weeks of activity.

Editor's Note: Article should interest investors in Bank of America (NYSE: BAC), Freddie Mac (OTC: FMCC.OB), Fannie Mae (OTC: FNMA.OB), Goldman Sachs (NYSE: GS), Morgan Stanley (NYSE: MS), Wells Fargo (NYSE: WFC), Toronto Dominion (NYSE: TD), BB&T (NYSE: BBT), CIT (NYSE: CIT), Bank United (NYSE: BKU), First Citizens (OTC: FCNCA.PK), Synovus (NYSE: SNV), United Bankshares (Nasdaq: UBSI), Hampton Roads Bankshares (Nasdaq: HMPR), WesBanco (Nasdaq: WSBC), City Holding (Nasdaq: CHCO), Sandy Spring (Nasdaq: SASR), First Citizens (OTC: FCBN.OB), SCBT Financial (Nasdaq: SCBT), Wilmington Trust (NYSE: WL), WSFS Financial (Nasdaq: WSFS), Southside Bancshares (Nasdaq: SBSI), Stellar One (Nasdaq: STEL), Union First Market (Nasdaq: UBSH), Eagle Bancorp (Nasdaq: EGBN), First Bancorp (Nasdaq: FBNC), Ameris (Nasdaq: ABCB), The Bancorp (Nasdaq: TBBK), First Community (Nasdaq: FCBC), Capital City (Nasdaq: CCBG), Financial Institutions (Nasdaq: FISI), National Bankshares (Nasdaq: NKSH), Citizens & Northern (Nasdaq: CZNC), Charter Financial (Nasdaq: CHFN), Seacoast Banking (Nasdaq: SBCF), TIB Financial (Nasdaq: TIBB), American National (Nasdaq: AMNB), United Community (Nasdaq: UCBI), Middleburg Financial (Nasdaq: MBRG), Heritage Financial (Nasdaq: HBOS), Zions Bancorp (Nasdaq: ZION), East West Bancorp (Nasdaq: EWBC), City National (NYSE: CYN), Bank of Hawaii (NYSE: BOH), SVB Financial (Nasdaq: SIVB), Westamerica (Nasdaq: WABC), Cathay General (Nasdaq: CATY), Umpqua (Nasdaq: UMPQ), Glacier Bancorp (Nasdaq: GBCI), Pacific Capital (Nasdaq: PCBC), PacWest (Nasdaq: PACW), Western Alliance (NYSE: WAL), First National Alaska (OTC: FBAK.OB), First Interstate Bancsystem (Nasdaq: FIBK), Nara (Nasdaq: NARA), West Coast (Nasdaq: WCBO), TriCo (Nasdaq: TCBK), Territorial (Nasdaq: TBNK), Washington Banking (Nasdaq: WCBO), Bank of Marin (Nasdaq: BMRC), Hanmi (Nasdaq: HAFC), PNC Bank (NYSE: PNC), J.P. Morgan Chase (NYSE: JPM), United Bankshares (Nasdaq: UBSI), Bank of New York Mellon (NYSE: BK), MB Financial (Nasdaq: MBFI), Astoria Financial (NYSE: AF), New York Community (NYSE: NYB), Hudson City (Nasdaq: HCBK), People's United (Nasdaq: PBCT), First Niagra (Nasdaq: FNFG), Capitol Federal (Nasdaq: CFFN), Washington Federal (Nasdaq: WFSL), Investor’s Bancorp (Nasdaq: ISBC), Northwest Bankshares (Nasdaq: NWBI), Sterling Financial (Nasdaq: STSA), Ocwen (NYSE: OCN), Flagstar (NYSE: FBC), Provident (NYSE: PFS), Colombia Banking (Nasdaq: COLB), Kearny (Nasdaq: KRNY), Brookline (Nasdaq: BRKL), Dime Community (Nasdaq: DCOM), Flushing Financial (Nasdaq: FFIC), Danvers (Nasdaq: DNBK).

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