Mortgage demand dipped before Fed move: MBA

By Al Yoon

NEW YORK (Reuters) - Applications for U.S. residential mortgages slipped from a five-year high last week as homeowners delayed refinancing ahead of expected federal action to lower housing costs, an industry group said on Wednesday.

The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity fell for the first week in four, dropping 8.2 percent to 1,143.8 in the week ended January 2.

Borrowers may have delayed applications in anticipation of the Federal Reserve's program to purchase up to $500 billion in mortgage-backed securities, which is aimed at lowering rates lenders can charge to consumers, an MBA economist said. The Fed began its purchases on Monday, fueling a sharp drop in premiums that investors demand to own the bonds, and by extension, a probable drop in mortgage rates this week, analysts said.

Fixed 30-year mortgage rates averaged 5.07 percent in the week, up from 5.03 percent the prior week, according to the MBA's survey. The rate has plunged from 6.47 percent at the end of October, mostly after the Fed announced its intentions.

"With all the talk the Fed is buying (MBS), rates could drop further and (borrowers) may say, 'Why not wait a little more'" before refinancing, said Orawin Velz, associate vice president of economic forecasting at the MBA.

The jump in applications during December may have been driven by homeowners already "on the fence" and prepared to refinance on a drop in mortgage rates, she added.

Tony Crescenzi, chief bond market strategist at Miller Tabak & Co., wrote in a client note on Tuesday that he expects average 30-year fixed rates to fall at least to 4.75 percent.

Helping push rates lower, investors accepted on Wednesday the smallest yield premiums on MBS issued by Fannie Mae, Freddie Mac and Ginnie Mae in more than three months.