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US mortgage applications fall

August 10, 2005

NEW YORK (Reuters) – Applications for U.S. home mortgages
fell last week, its third consecutive drop, as refinancing
waned and interest rates reached four-month highs, industry
group figures showed on Wednesday.

The Mortgage Bankers Association said its seasonally
adjusted index of mortgage application activity fell 0.9
percent to 745.0 in the week ended Aug. 5, adding to the
previous week’s 0.3 percent loss. The four-week moving average
was down 1.5 percent to 763.1 from 774.9.

Fixed 30-year mortgage rates, the benchmark for the
mortgage industry, averaged 5.91 percent last week, excluding
fees, up 8 basis points, or 0.08 of a percentage point, from
5.83 percent the previous week.

It was also the highest rate since the week ended April 8,
when 30-year mortgages hit 5.95 percent.

The 30-year rate is still below the 2005 high of 6.08
percent reached in late March. But in a break with recent
trends, the rate is now higher than the 5.80 percent level of
early August 2004.

Last week’s slide in mortgage applications was in the
refinancing sector. The MBA’s seasonally adjusted index of
refinancing applications fell for a third consecutive week,
dropping 3.3 percent to 2,176.5 after falling 3.0 percent the
prior week.

Purchasing activity, however, rose for a second consecutive
week.

The MBA’s purchase index, a gauge of loan requests for home
purchases, rose 0.9 percent to 498.8, adding to the previous
week’s 1.9 percent gain.

Fixed 15-year mortgage rates last week averaged 5.49
percent, up 8 basis points from 5.41 percent the previous week.

Rates on one-year adjustable-rate mortgages, or ARMs, rose
to 4.88 percent last week from 4.78 percent one week earlier.

HIGHER RATES MAY STIFLE HOUSING SECTOR

Comparatively low mortgage rates have buoyed the housing
sector for more than four years. Long-term rates have remained
relatively low, even though the Federal Reserve has raised its
target for short-term interest rates 10 times since June 2004.

Indeed, over the past two months, some economists have
boosted their 2005 targets and forecast another record year for
sales and construction.

But with mortgages rates moving higher, some economists see
home sales and construction edging off record peaks, though how
soon that will happen is not clear.

“Obviously, the impact on the consumer is a great one,”
said Ellen Bitton, president and chief executive officer at
Park Avenue Mortgage Group, Inc., based in New York.

“Coupled with higher oil prices, although real estate
prices have surged up until very recently, there will be a
cooling down,” she said.

The National Association of Realtors’ chief economist,
David Lereah, in a monthly forecast on Tuesday nudged his
estimates higher for sales of previously owned and new homes in
2005 but said sales should begin to ease off record levels
during the second half of the year.

Freddie Mac’s chief economist, Frank Nothaft, in
his monthly outlook earlier this week said higher interest
rates will eventually dampen housing demand. Nevertheless, he
lifted his estimates for home sales and construction in 2005.

ARM DEMAND INCREASES

On a four-week moving average, the refinancing index
dropped 3.9 percent to 2341.3 from 2,435.8.

Refinancings last week also decreased as a percentage of
all mortgage applications, falling to 40.9 percent from 41.7
percent.

On a four-week-moving average, the purchase index is up 0.5
percent to 491.8 from 489.3. In early June the purchase index
reached a record high of 529.3.

After falling during the previous week, demand for
adjustable-rate mortgages rose in the week ended Aug 5, the MBA
said. The ARM share of activity stood at 29.7 percent of total
applications last week, up from 28.5 percent the previous week.

With ARMs, low initial payments allow borrowers to buy
homes they may not be able to afford with a fixed-rate loan.

The MBA’s survey covers about 50 percent of all U.S. retail
residential mortgage originations. It has been conducted weekly
since 1990. Respondents include mortgage bankers, commercial
banks and thrifts.




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