MBA: Affordability Challenges Driving Rise in Government-Backed Loan Activity

Applications for home loans remained essentially flat this week, declining slightly along with the refinance share of total mortgage activity, while experts note an uptick in government-backed loan applications is an indicator of ongoing affordability challenges.

According to the latest Mortgage Bankers Association (MBA) report, the Market Composite Index—the measure of mortgage loan activity volume and includes purchases and refinances—which decreased 0.3% on a seasonally adjusted basis from last week’s 8.9% decrease, for the week ending Feb. 6. On an unadjusted basis, the Index increased 2% compared with the previous week.

MBA’s seasonally adjusted Purchase Index (measuring purchases of single-family homes only) decreased 2% from the previous week and the unadjusted Purchase Index increased 4% compared to the previous week and was 4% higher than the same week a year ago, according to this week’s report. 

“Mortgage applications were relatively flat over the week, but it was a mixed bag for the different loan types. The 30-year fixed rate was unchanged at 6.21 percent, and conventional applications declined for both purchases and refinances as borrowers held out for another drop in rates or shifted to other loan types,” said Joel Kan, MBA’s vice president and deputy chief economist. “FHA purchase and refinance applications increased, helped partially by the FHA rate declining and remaining 20 basis points lower than the conforming 30-year fixed rate.”

Specifically, the report shows the FHA share of total applications increasing to 18.4% from 17.8% the week prior. The VA share of total applications increased to 16.0% from 15.8% the week prior and the USDA share of total applications remained unchanged at 0.4%from the week prior.

“Borrowers are increasingly utilizing FHA loans as affordability challenges remain, despite recent improvements,” Kan noted. “Similarly, the ARM share increased to a seven-week high with ARM rates almost a percentage point lower than fixed rates.”

MBA’s report shows the refinance share of mortgage activity decreasing to 56.4% of total applications from 57.1% the previous week. However, the Refinance Index—measuring the total volume of mortgage applications for refinancing existing homes—increased 1% from the previous week and was 101% higher than the same week one year ago.

Click here for the full report.