The Mortgage Bankers Association (MBA) announced Wednesday that mortgage applications remained near a six-month low last week as rising rates cut into what has been a robust refinancing market. Rates on the 30-year fixed mortgage hit 5.18 percent for the week ended January 1, 2010, the highest level since August.
This trend, coupled with an expiring home buyer tax credit in the spring could dampen lending profits for Bank of America (NYSE: BAC), which is the nation’s leading mortgage originator, with a market share in excess of 20 percent, and Wells Fargo (NYSE: WFC), the second largest mortgage servicer in the U.S.
Refinancing has been a large catalyst in the rebound of the U.S. mortgage market as homeowners looked to lock in historically low rates. However, the Mortgage Bankers Association said its refinancing index fell 1.6 percent last week after tumbling 30.2 percent in the week ended December 25, 2009.
New homebuyers pushed to close on purchases to receive the $8,000 tax credit before the December deadline, before the extension was made. That extension to April 30 is helping fuel additional demand as those who were not able to put a deal together in time are jumping back in the market in order to benefit from the tax savings.
The home buyer tax credit is not the only incentive that buyers will lose this year. Record low mortgage rates will likely not induce mortgage activity either as the Federal Reserve is unwinding its mortgage asset buying programs that are aimed at holding rates down.
These factors do not bode well for Bank of America and Wells Fargo, along with the lending businesses of U.S. banks on a whole.
