Borrowers defy logic with mortgage rates

Mortgage activity finally responded to lower interest rates but just as rates began to rise again.

Mortgage activity finally responded to lower interest rates but just as rates began to rise again.

Total mortgage applications surged 10.3 percent on week on a seasonally adjusted basis, according to a weekly survey from the Mortgage Bankers Association (MBA).

The rise comes as the average contract interest rate for 30-year fixed rate mortgages with conforming loan balances ($417,000 and under) increased to 4.34 percent from 4.26 percent the previous week. Rates had been falling steadily but didn't spur much activity. This suggests a time lag to act which may have cost borrowers extra money.

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"We could have held out some hope that markets were just digesting last week's big events and that rates might still snap back lower," wrote Matthew Graham of Mortgage News Daily in an analysis of the latest rate moves. "Today builds a case against any quick moves lower, and begins to make last week's only positive day for rates look like an outlier in an otherwise determined trend higher."

Applications to refinance a mortgage increased 11 percent on week but are still down 54 percent on year.

"Although rates increased last week, the level of rates are still low, with rates forecasted to go higher, so it is not surprising that refinance volume picked up," said Michael Fratantoni, the MBA's chief economist.

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Applications for loans to purchase a home rose 9 percent on week and are down 13 percent on year.

At an investor conference Tuesday the CFO of Wells Fargo (WFC), the nation's largest mortgage lender, said "people just aren't buying homes at the pace" the bank expected.