Mortgage applications for home purchases remain at record lows. On a volume basis, the annual growth rate of purchase-only applications index is 45% below its level this time last year. And as we all know, this time last year was three months into the recession. This is squeezing the mortgage industry, and fraud is on the rise.
The chart illustrates the Mortgage Bankers Association (MBA) measure of purchase-only and refinance mortgage applications. The Fed and Treasury programs have successfully lowered mortgage rates by purchasing mortgage-backed securities, which has resulted in a flood of refinancing applications, 33% higher than March of 2008. However, the real demand that the government would like to grow is still anemic. The purchase-only mortgage application index is 45% below its level this time last year.
Basically, homeowners that can afford it are getting a great deal by refinancing at lower rates. Those who can't, because they are underwater or cannot come up with the capital to finance the deal, won't.
Hard times in the mortgage business has also resulted in record mortgage fraud activity according to the Mortgage Asset Research Institute. Mortgage fraud is at an all time high, loan origination is at an all-time low, and both have led to a 30% increase in fraud reports since last year. Although much of the fraud activity is primarily due to increased regulatory intervention, a trend is nevertheless developing. And the fraud is on both the demand (borrower) side, with application misrepresentation, and on the supply side (originator), with verification issues.