Applications for purchase mortgages tumbled 34.1 percent for the week ending October 9th after surging 27.4 percent in the prior week, but the 4-week moving average remains strong. The new TILA RESPA Integrated Documentation (TRID) closing documents and process also known as the Know Before You Owe rule was introduced on October 3rd. Consequently the boom and bust pattern reflects applications that were filed early to avoid complications with the new rule and the subsequent slump.
This regulation streamlines many of the current closing docs and includes new features intended to make the consumer more aware of their true financial burden.
While both components fell sharply from a week earlier, the conventional applications portion declined slightly more than government applications (pictured above). However, the full index was down only 1.2% from a year ago, the first year-over-year decline in the seasonally adjusted index since January 2015. If demand had not been pulled forward into the prior week’s reading, this week’s reading likely would have been much stronger than a year earlier. The 4-week moving average, a means of smoothing this weekly volatility, declined just 3.1 percent from the prior week, but is up 23.4 percent from the same time a year ago, roughly the same as it was for the prior month.
The average rate for a 30-year fixed mortgage was unchanged from a week earlier at 3.99 percent, but was 21 basis points lower than the same time a year earlier.
This week’s decline is likely to abate in the weeks ahead, but the pattern may remain choppy as originators wrestle with the new regulatory environment.
In the long term, the rule should help to make the process a more transparent process for consumers. Luckily the change was timed for the fall, a slower period, the Consumer financial Protection Bureau has signaled its intention to hold lenders harmless so long as they perform a “best effort” to comply in the near term.
Some lenders may be better prepared for the changes than others. Consumers and Realtors should shop a variety of lenders and ask their Realtors for their experiences with various lenders in the TRID environment. The closing process may take longer and as a result could cost slightly more for longer rate locks. A savvy lender could help to smooth the process.
Ken Fears is the Manager of Regional Economics and Housing Finance Policy. He focuses on regional and local market trends found in the Local Market Reports and the Market Watch Reports . He also writes on developments in the mortgage industry and foreclosures.