As mortgage rates rise, the number of applications, foreclosures decline

As mortgage rates rise, mortgage applications and foreclosures are down.

With mortgage rates pushing upwards of 4 percent, commercial lenders are seeing declines in both mortgage applications and foreclosure activity.

MarketWatch reported data from the Mortgage Bankers Association revealing a 23 percent drop in the total number of mortgage applications filed in the U.S. last week when compared to the week prior. The MBA also reported a 4 percent drop in the market composite index as well as the refinance index. A 3 percent drop was also seen in the seasonally adjusted purchasing index. 

Still, refinance applications for existing mortgages comprised 64 percent of total applications. The Home Affordable Refinance Program's share of those refinance applications rose 1 percent from the previous week, to 35 percent. Adjustable rate mortgages (ARMs) contributed only 7 percent of mortgage applications, according to MarketWatch.

Mortgage rates
The 15-year fixed rate mortgage interest rate rose to 3.76, increasing by 0.12 percent from the previous week. The 5/1 ARM rate rose from 3.33 percent to 3.4 percent, its highest level since May 2011. The benchmark 30-year fixed rate mortgage rate increased to 4.68 percent, while jumbo loans or mortgages with similar balances came considerably closer to 5 percent, with a rate of 4.86 percent.  Federal Housing Administration mortgage rates also rose 0.1 percent from the previous week, leveling off at 4.37 percent, as reported by MarketWatch.

The recent hike in rates has had a mixed effect. For some prospective homebuyers, rising rates are causing a rush to lock in an affordable rate with historically low rates. This trend is evidenced by the increase in the number of pending home sales. However, it is persuading other buyers to stay out of the market. To compensate, lenders can be expected to loosen credit standards as well as credit limits to accommodate higher home prices.

Forecloses are down
As mortgage rates and home prices increase, many buyers ought to look toward judicial foreclosure auctions. While the pace of foreclosures have cooled nationally, the auctions that make them available to market are ramping up.

"Halfway through 2013 it is becoming increasingly evident that while foreclosures are no longer a problem nationally, they continue to be a thorn in the side of several state and local markets, particularly where a backlog of delayed distress has built up thanks to a lengthy foreclosure process," said Daren Blomquist, vice president at RealtyTrac. "The increases in judicial foreclosure auctions demonstrate that these delayed foreclosure cases are now being moved more quickly through to foreclosure completion. Given the rising home prices in most of these markets, it is an opportune time for lenders to dispose of these distressed properties, either at the foreclosure auction to a third-party buyer, or by repossessing the property at the auction and subsequently selling it as a bank-owned home."

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