The government's repeated interest rate cuts and liquidity infusions are beginning to have a positive effect according to a new Mortgage Bankers Association Mortgage Applications Survey. The March 21st Market Composite Index, a measure of mortgage loan application volume, was 965.9, an increase of 48.1 percent on a seasonally adjusted basis from 652.0 one week earlier.

The Refinance Index alone increased 82.2 percent to 4255.2 from 2335.2 the previous week and the seasonally adjusted Purchase Index increased 10.6 percent to 403.7 from 365.0 one week earlier. The refinance share of mortgage activity increased to 62.0 percent of total applications from 49.7 percent the previous week. The adjustable-rate mortgage (ARM) share of activity decreased to 3.8 from 7.9 percent of total applications from the previous week.

"The Federal Reserve acted last week to bring some stability to the mortgage-backed securities market and we saw an immediate impact with a drop in mortgage rates. With a drop in the 30-year fixed rate of at least a quarter of a point, we saw a sharp increase in refinance applications, but applications for home purchases also increased over where they have been the last few weeks, although still below where they were this time last year," said Jay Brinkmann, MBA's Vice President of Research and Economics.
Mortgage Bankers Association

Jumbo Federal Housing Administration mortgages are likely to carry interest rates that are at least a 0.375 percentage point higher than rates on normal FHA loans, said Mahesh Swaminathan, a mortgage strategist at Credit Suisse in New York.

The current rate for a normal 30-year fixed-rate FHA loan is about 5.875 percent, while the rate on the new larger one is initially 6.375 percent.

Fannie Mae and Freddie Mac also are introducing larger loans under temporary authority from Congress. Early indications are that the larger Fannie and Freddie loans also may require interest rates about 0.5 point higher than ordinary ones, Swaminathan said.

Nevertheless, rates on these loans are expected to be lower than those on mortgages that aren't backed by Fannie, Freddie, or the FHA.
Daily Real Estate News

 

Regional U.S. banks will be allowed to temporarily boost holdings of mortgage-backed securities by some $150 billion in another bid by regulators to bring stability to troubled mortgage markets.

The move announced on Monday by the Federal Housing Finance Board enables the banks in the Federal Home Loan Bank system to expand their holdings of securities issued by Fannie Mae (FNM.N: Quote, Profile, Research) and Freddie Mac(FRE.N: Quote, Profile, Research), the congressionally chartered companies that are the two biggest U.S. home financing providers. Regulators have made a series of moves to ease strains in U.S. mortgage markets where a rising tide of foreclosures has made lenders so wary that it has threatened to dry up funding.

Just last Wednesday, the regulator for Fannie Mae and Freddie Mac eased their capital requirements, allowing them to pump another $200 billion into distressed mortgage markets with purchases of mortgages and mortgage securities. The Federal Housing Finance Board on Monday voted to let the banks immediately use existing capital to increase their holdings of mortgage-backed securities issued by Fannie and Freddie, or agency MBS, for two years. The $4.5 trillion market for agency MBS is the cornerstone of the entire mortgage market and had shown signs of cracking until signs of federal support appeared.

"Without a functioning mortgage market, you can't get out of the mortgage mess," said Walter Schmidt, head of mortgage bond strategy at FTN Financial in Chicago. "It seems like the government is doing what it can."
Reuters

Hank Paulson, US treasury secretary, on Wednesday said the Federal Reserve should -bolster its supervision of investment banks while they access its emergency cash, but stopped short of calling for permanent regulation by the Fed.

In a dramatic move, the Fed last week expanded its emergency lending to primary dealers, including all the big investment banks. The decision led several senior lawmakers in Congress to call for tighter regulation of investment banks.

Wall Street firms such as Goldman Sachs and Lehman Brothers have their securities-related activities regulated by the Securities and Exchange Commission, but the Fed imposes more wide-ranging regulation on commercial banks such as JP Morgan and Citigroup. Such commercial banks are usually the only institutions allowed to borrow at the Fed's "discount window".
Financial Times