MBA Mortgage Application Numbers, Week of September 28th

TRADEX GLOBAL INTERNAL COMMENTARY

Mortgage applications jump!  Applications for home mortgages rose to the highest level in 3 years, driven by a drop in interest rates to yet another record low.  MBA reported a 16.6% rise in applications in the week ending September 28th.  The index of refinancing applications surged 19.6% from the previous week (HARP is working), while fixed (conforming) 30-year mortgage rates dropped to 3.53% from 3.63% one week earlier.  The refinance share of total mortgage activity moved up to 83% from 81% a week earlier.  We do a lot of work on mortgages for our Liquid Real Estate Portfolio and watch prepayments very carefully.  We believe prepay activity (refinancing) will stay elevated through the end of the year, but as banks are not writing mortgages at the lowest rates possible we think that we are seeing the peak of mortgage prepayments.  This should be a favorable environment for our IO exposure in the first quarter of 2013.  Keep nimble – Michael Beattie

EXTERNAL RESEARCH COMMENTARY

Applications for home mortgages surged last week as demand for refinancing rose to the highest level in more than three years, driven by a drop in interest rates to yet another record low, data from an industry group showed on Wednesday. The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity, which includes both refinancing and home purchase demand, jumped 16.6 percent in the week ended Sept 28. The index of refinancing applications surged 19.6 percent, hitting the highest level since April 2009. The gauge of loan requests for home purchases - a leading indicator of home sales - also rose, though not as strongly, gaining 3.9 percent. The stronger demand came as mortgage rates hit fresh lows in the wake of the Federal Reserve's latest aggressive program to boost the economy. In a program known as quantitative easing, or QE3, the Fed said in September that it will buy $40 billion in mortgage-backed securities a month until the job market improves. "Financial markets continue to adjust to QE3, as the ongoing presence of the Federal Reserve as a significant buyer of mortgage-backed securities applies downward pressure on rates," Mike Fratantoni, MBA's vice president of research and economics, said in a statement. Fixed 30-year mortgage rates dropped 10 basis points to average 3.53 percent, down from 3.63 percent the week before. The refinance share of total mortgage activity gained to 83 percent of applications from 81 percent the week before. The survey covers over 75 percent of U.S. retail residential mortgage applications, according to MBA.

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