Recent data from the Mortgage Bankers Association showed that mortgage applications for new home purchases increased in March.
According to the Builder Application Survey, there was a 15 percent unadjusted gain for purchase applications month over month. As noted by the MBA's most recent weekly applications survey, purchase mortgages have been advancing despite the drop in overall applications, especially refinances. As the spring buying season kicks off, the increase in purchase applications is consistent with the revival of homebuyer activity following the winter, a particularly notable trend given the extent to which the past winter dampened economic activity across many sectors.
The MBA also found that the average loan size for new homes increased to $296,428 in March, up from $295,008 in February. Conventional loans accounted for 68.3 percent of total applications in March, while Federal Housing Administration loans accounted for 17.2 percent. Rural Housing Service/Department of Agriculture loans and Veteran's Administration loans composed 1.6 percent and 12.9 percent, respectively.
Some positive news for lenders
Some economists predicted that 2014 would be a less-than-fruitful year for mortgage lenders as the Consumer Financial Protection Bureau's Qualified Mortgage rule excluded many previously eligible homebuyers from purchasing a property. Additionally, talks of gradually reducing the presence of Fannie Mae and Freddie Mac sparked fears that lending could experience a slowdown as the private mortgage market shouldered more of the risk.
Despite these expectations, the transition to more private capital in the mortgage market has already started, and loans are performing better. According to HousingWire, a report from Capital Economics showed that the spread between jumbo and conforming mortgages is shrinking as homebuyers shy away from the higher fees associated with government home loans. Among those financial grievances were higher guarantee fees for loans backed by Fannie and Freddie and higher conforming loan interest rates resulting from tapering of the Federal Reserve's quantitative easing program.
Paul Diggle, property economist for Capital Economics, told HousingWire that the transition is positive for both the housing market and lenders. The declining spread indicates that private capital is able to compete with funding from the government-sponsored entities. Additionally, lenders are able to avoid paying guarantee fees when borrowers opt for a jumbo loan.
Default credit rates decline
Lenders who have not seen the mortgage market transition as beneficial due to the increased risk may see some relief in dropping national default credit rates. The S&P/Experian Consumer Credit Default Indices found that in March, the national composite dropped to its lowest post-recession reading and a level not seen since July 2006, at 1.20 percent. The first mortgage default rate also dropped in March, falling to 1.13 percent, the lowest level since September 2006. Meanwhile, the second mortgage default rate decreased from 0.69 percent in February to 0.60 percent in March.
"Along with signs that the economy is improving, consumer credit default rates continue to gradually decline," said David Blitzer, managing director and chairman of the Index Committee for S&P Dow Jones Indices.
The report noted that default levels have improved across all sectors, especially for auto loans and bank cards, which reached historic lows. Furthermore, default rates have stabilized to pre-recession levels, an indication that borrowers are more prepared to pay their debts. Consumer spending is expected to grow, and some of that spending is likely to go new home purchases while demand picks up as a result of more favorable weather.