Applications for U.S. home mortgages dropped last week as interest rates rose to the highest level since mid-August, driving down applications for refinancing, an industry group said on Wednesday.
The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity declined 16.5 percent to 608.8 in the week ended Nov. 26.
The MBA's refinancing applications index plunged 21.6 percent to a reading of 2,974.4, the lowest reading since early June. The drop coincided with a rise in fixed 30-year mortgage rates to 4.56 percent in the week from 4.50 percent in the previous week.
It was the highest level for average 30-year rates since the week ending Aug. 13, the MBA said.
The recent rise in rates has essentially closed the refinancing window on nearly $1 trillion in existing mortgages, said Scott Buchta, head of investment strategy at Braver Stern Securities in Chicago.
Regulators and lawmakers have already been disappointed over the refinancing response of low interest rates engineered under U.S. monetary policy. As the housing slump lingers, banks and mortgage funding giants Fannie Mae and Freddie Mac have kept underwriting guidelines tight, or tightened them more, cutting off credit and limiting housing demand.
Weighted average credit scores have increased to near 750 in recent months from below 720 at the start of 2008, while the average balance of new loans relative to the property value has slid to the low-70 percent range from around 80 percent, according to Lender Processing Services data.
Many borrowers who no longer see benefit in refinancing are ones that took advantage of falling rates in the spring of 2009 when 30-year mortgage rates fell below 5 percent, Buchta said.
Elsewhere, the MBA's home purchase loan application index edged higher by 1.1 percent to 207.2.
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