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Mortgage application activity slumps as rates rise

In the past few weeks, consumers have done a little bit of work to buck the trend of mortgage application numbers taking a fall every time rates rise. However, a starker decline in affordability seen in the previous week sent interest in entering the mortgage process tumbling.

The total amount of home loan request activity in the seven-day period ending Sept. 16, including an adjustment for the Labor Day holiday, dropped 7.3 percent on a seasonally adjusted basis from the week prior, according to the latest Weekly Mortgage Applications Survey from the Mortgage Bankers Association. Without the adjustment, the decline was actually 15 percent.

The change came through a mostly even split between declines in refinance and purchase mortgage applications, the report said. The MBA's Refinance Index slid 8 percent over the week and now sits at its lowest level observed since June. Meanwhile, the Purchase Index slipped 7 percent on an adjusted basis, and 15 percent unadjusted. However, it's also worth noting that even with the slump, the index was still up 3 percent on an annual basis.

Changes to the market
This shift led the share of applications in the market to tilt a little more in favor of refinances, which took up 63.1 percent of all applications, the report said. That was an increase from 62.9 percent from the week before.

These changes came as the average rates on the nation's most popular mortgage products ticked up across the board, albeit marginally, the report said. For instance, the average 30-year fixed-rate mortgage saw rates climb to 3.7 percent from the previous week's 3.67 percent. The former is now the highest seen since June. Meanwhile, average rates for 15-year FRMs – which are popular among refinancers in particular – rose to 2.99 percent from 2.97 percent seven days earlier.

Mortgage default rates still in good shape
Meanwhile, also among current homeowners, the rates at which they fell far behind on their mortgage payments continues to sit at extreme low levels, according to the latest Credit Default Indices from S&P and Experian. The default rate for first mortgages through the end of August was 0.68 percent, up very slightly from the 0.66 percent rate seen the month prior. However, on an annual basis, defaults were still significantly lower, as August 2015 saw a default rate of 0.84 percent.

The good news is that improving default rates could encourage lenders to continue expanding credit access for hopeful buyers, but those who really want to get the best deal possible should put in the work to improve their credit standing overall. By doing so, they will not only have access to a mortgage in the first place, but also be able to tap the most affordable rates available. That, in turn, will help them get into the market before rates and prices rise any more than they already have in recent weeks.

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