Mortgage application activity declined significantly last week, as fewer borrowers took advantage of government programs to restructure loans into more favorable terms.
Overall activity fell 6.7 percent from the previous week, according to a report from the Mortgage Bankers Association. This drop was spurred by an 8 percent decrease in refinance requests, while the purchase index edged 1 percent lower. This relatively unchanged index could be a sign that demand for homes may have plateaued, although affordability is at an all-time high.
Despite newly expanded government initiatives, such as the Home Affordable Refinance Program and Home Affordable Modification Program, a greater number of borrowers opted for conventional refinances through private lenders, the report indicated. As a result, the total share of these requests accounted for 78 percent of demand, down from 79 percent a week earlier.
Specifically, it was found that 24 percent of refinance inquiries were through HARP applications, while HAMP accounted for significantly fewer.
FHFA announces pilot program success
Although the demand for government programs weakened, other efforts to stabilize the housing market have been successful recently. For example, the Federal Housing Finance Agency selected the winning bidders for its pilot program in which investors can purchase real estate-owned properties in bulk.
"FHFA undertook this initiative to help stabilize communities and home values in areas hard-hit by the foreclosure crisis," said FHFA acting director Edward DeMarco. "As conservator of Fannie Mae and Freddie Mac, we believe this pilot program will assist us in achieving our objectives and help to maximize the benefit to taxpayers. We are pleased with the response from the market and look forward to closing transactions in the near future."
The agency has not yet released the names of the different individuals and companies that will get a share of the approximately 2,500 properties put up for auction, but the announcement is expected later in the third quarter.
Under the program, investors were subject to a stringent vetting process to determine if they have the knowhow to successfully convert these distressed homes into rental units or sell them for a profit.
Meanwhile, the 2,500 units selected for the program are just the tip of the iceberg. Property data shows that Fannie Mae currently has hundreds of thousands of distressed homes in its inventory. Since the pilot program has been successful so far, experts anticipate a greater number of these homes to soon be available at auction. While currently reserved for just foreclosures, short sales could be involved with the initiative in the near future as well.