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Loan applications surge with Brexit benefit

Home-loan refinances got another weekly boost from near historic low interest rates that have come with Britain’s Brexit decision to leave the European Union.

Through July 8, overall loan applications rose 7.2 percent over the week seasonally adjusted, driven by an 11 percent increase in refinances,  the Mortgage Bankers Association reported. Rates fell to the lowest level since May 2013, boosting up the share of refinances vs. purchase applications 2.4 percentage points to 64 percent of the overall market. 

Mortgage app"Investors continued to seek safety in U.S. assets given the global turbulence following the Brexit vote," MBA Chief Economist Mike Fratantoni said. Fratantoni said that refinance application volumes reached the highest level in three years, even as applications for home purchase loans remained flat for the week.

Fratantoni also said the share of Federal Housing Administration (FHA) loan applications has fallen to its lowest level since January 2015, the month that the agency announced it was lowering its annual insurance premium to 0.85 percent from 1.35 percent. For the second consecutive week, FHA's share of applications was under 10 percent, though the FHA share ticked up slightly compared to the prior week. FHA applications spiked through much of 2015 after the insurance cut.

“Some lenders remain cautious regarding the FHA program given the potential liability exposure,” Fratantoni said. “At the same time, there are now a growing number of conventional mortgage products designed for first-time homebuyers that may be a good substitute for FHA loans."

Ryan Kelley, owner of the St. Louis-based The Home Loan Expert, however, said he hasn't noticed a slowdown in the tide of FHA volume in his region. 

"I'm kind of shocked to hear that people believe the FHA loan program is losing steam," Kelley told Scotsman Guide News.  "More people might start the loan process asking about the conventional 97 percent [loan to value] loan program. But once they see the rate, [the] MI, restrictions, et cetera, they end up choosing the FHA loan product."

The rate for a 30-year, conforming mortgage fell six basis points to 3.6 percent, but points increased marginally, MBA said.  Treasury yields, which track closely with mortgage rates, have also been driven down by other factors, such as the slowing economy in China and uncertainty over the U.S. presidential election, according to analysts.  

Fratantoni also noted a second emerging trend in the data. For the second week in a row, jumbo rates exceeded the rate for conforming mortgages, which hasn’t generally been the case over the past three years. Fratantoni said that might be a sign that banks are growing more cautious about putting these large loans on their balance sheets at such low rates.


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