Borrowers looking to refinance before interest rates go up drove mortgage volume higher last week. Mortgage applications increased 7.3 percent from the prior week, according to the Mortgage Bankers Association. Refinance applications jumped 11 percent, and purchase applications rose 4 percent.
Even though the Federal Reserve increased short-term rates by 25 basis points on Dec. 16, the hike barely budged long-term rates. The average contract interest rate on the 30-year fixed mortgages rose to 4.16 percent from 4.15 percent. Rates on a 15-year fixed-rate mortgage nudged up 0.07 percent to 3.45 percent, the highest level since October 2014.
“Borrowers may have been spurred to act by the potential for future rate increases from the Fed, which are more likely to be reflected in higher mortgage rates over time,” said Mike Fratantoni, the association’s chief economist.
Lenders are making it a little easier for borrowers to qualify for a mortgage. Ellie Mae, a mortgage software and analytics company, said the average FICO score on all closed loans fell to 721, the sixth-consecutive month of decline, and an 18-point drop from a year ago.
Lenders are making more credit available as the market has been shifting away from refinancing and toward purchases. “You’re seeing that there is a real intent from the secondary market to embrace new consumers and help them largely through education,” said Joe Tyrrell, executive vice president of corporate strategy at Ellie Mae.
Fannie Mae’s Home Ready program, a low down-payment loan option that gives lenders increased underwriting flexibility, is a key example of the expanding credit box.
“We are starting to see the re-emergence of programs that are not getting back to where we were before in the pre-bubble burst market from a credit-worthiness perspective, but you are starting to see the program normalize a little bit and get back to allowing more people availability to own homes,” Tyrrell said.