Bank of America (NYSE: BAC), Other Banks To Rebound On Mortgage Applications?

Banking revenue related to home mortgage loans should be in for an uptick in the coming months. The data continues to pour in, and equity researchers are struggling on digesting it all. This week, the Mortgage Bankers Association released a report showing that demand for home loans in the United States rose last week, to the highest level in about two months. This could be a promising sign that borrowers have begun taking advantage of the low mortgage rates and refinancing their homes.

This wave of refinancing may be different than the last wave earlier this decade though, as the first wave contained many home owners cashing out equity in their homes, then using those funds to spend on big ticket items like cars and vacations, while also paying down other debts. The days of using the equity built in a home may be gone for now though, and this spur of refi activity seems more focused on achieving better rates, and even staving of foreclosure in some cases.

Almost 75% of loan requests was for a refinancing loan rather than a purchase, which may be a reflection of double-digit unemployment and fear of job loss keeping buyers on the sidelines. The average 30-year mortgage rate rose 0.09 percentage points last week, to 4.88%. In the same period last year, the average mortgage rate was 5.44 percent, though current rates remain higher than the March 2009 lows of 4.61 percent.

Many researchers have been waiting to see home purchase activity to rise, reasoning this by better affordability due to falling real estate prices, along with government provided tax incentives to buyers. This has not come to fruition yet though. Home prices peaked in 2006, and on average have dropped nearly 30 percent, though that tide has started to reverse in some areas.

In an effort to spur the real estate market, the Obama administration has decided to extend the $8,000 tax credit that was due to expire on November 30, through June 30 of 2010. In addition, a new $6,500 tax credit was added, in an effort to lure move-up buyers. The MBA expected buyers to be more active this winter than in normal users, due to the heavy incentives and relatively lower prices.

As banks and mortgage lenders dig through these loan applications, significant profits could be achieved in the coming quarter. Although sub prime lending collapsed in 2008, this activity may return Bank of America’s (NYSE: BAC) Countrywide division to prominence, as a leader in the mortgage industry.