Mortgage applications more than double
Bankers' group cites Fed's bailout of Fannie and Freddie for plummeting rates, with refinancing leading the way.
NEW YORK (CNNMoney.com) -- Mortgage applications more than doubled last week, a mortgage bankers' group said Wednesday, as government bailouts led to sinking interest rates that made refinancing especially more attractive.
In the weekly report, the Market Composite Index - the association's measure of mortgage loan application volume - surged 112.1% on a seasonally adjusted basis from the week earlier.
On an unadjusted basis, the index increased 51.4% from the previous week; it was down 21.9% from a year earlier, the report said. Results included an adjustment to account for the Thanksgiving holiday.
Rates plummeted following the Fed's announcement that it would buy debt and mortgage-backed securities from mortgage finance companies Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500), according to Orawin Velz, associate vice president of economic forecasting, in a statement.
"Many of those on the sidelines decided to quickly jump in and take advantage of lower rates before they began to rebound," Velz said.
The Mortgage Bankers Association said 30-year fixed-rate mortgages fell to 5.47% this week. That's was down from 5.99% last week.
Rates on 15-year fixed-rate mortgages fell to 5.13% from 5.78%, the report said. The rate on a one-year adjustable-rate mortgage declined to 6.61% from 6.87%.
While the application statistics were high, "this is more a refinance story than a purchase story," said Mike Larson, real estate and interest rate analyst at Weiss Research.
The report's Refinance Index increased 203.3% to 3802.8 from the previous week, and the seasonally adjusted Purchase Index increased 37.4%.
"While purchasing a home is a big commitment, refinancing is often a no-brainer," Larson said. "You may be less inclined to go buy a house in this weak economy. Refinancing will go forward if the gains can hold."
In the short-term, the Fed "did manage to get quite a bit of bang for their buck," Larson said. "Most things they've done so far have improved some credit spreads slightly, but you didn't see the effect on Main Street. Now, these are big numbers - the biggest we've ever seen."
Today's rates are lower because lenders' standards are tighter, Larson said, so many buyers applying may not have the equity they need for approval. As a result, more applications "might end up in the circular file rather than the closing tables," he said.
Still, Larson expected the Fed's actions will result in more staying power and success, giving stressed homeowners a bit of breathing room.