Mortgage activity edges lower, new regulations could cause further declines

A slowdown in both purchase and refinance requests caused a drop in mortgage application activity during the week ending August 10.

A slowdown in both purchase and refinance requests caused a drop in mortgage application activity during the week ending August 10.

The Market Composite Index, which is a measure of overall home loan applications, dipped 4.5 percent from the previous week, according to a report from the Mortgage Bankers Association. This was a result of fewer consumers submitting request to receive financing to buy homes, as the seasonally adjusted Purchase Index declined 2 percent.

Meanwhile, refinance applications fell slightly from a week earlier to account for 81 percent of all activity, the report said.

Both of these declines occurred despite fixed mortgage rates hovering near all-time lows. Specifically, 30-year FRMs with conforming loan balances remained unchanged from the previous week at 3.76 percent. In addition, 30-year FRM jumbo loans with balances greater than $417,500 dipped to 4.03 percent from 4.04 percent during the same period.

Purchase activity could decline further   

Recently proposed lending regulation from the Federal Reserve, Federal Housing Finance Agency and four other groups, could create more obstacles during the origination process of high-risk mortgage loans.

Under the proposal, lenders are required to use a licensed or certified appraiser to prepare a written statement based on a physical inspection of the property. In addition, these professionals will also have to disclose why the appraisal is being conducted and provide a free copy of the report to the buyer. 

It's believed this rule is closely tied to the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Additionally, if the seller acquired the home fewer than six months prior to listing in on the market, an additional appraisal will need to be conducted at no cost to the buyer. The governing bodies responsible for the new regulation claim this could prevent fraudulent home flipping practices and will ensure the accurate value of a property before it is used as collateral for a mortgage.

Consumers and industry professionals will have until the middle of October to submit comments on the proposed regulations. Once this input is considered, necessary changes will be made before the rules official go into effect.

However, some experts already believe this could create an unnecessary burden on the mortgage industry and hinder the closing process for a number of qualified borrowers.



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