Mortgage demand fell at year-end, purchases sag (Reuters)

(Reuters) – Demand for loans to buy homes and refinance mortgages slid in the final week of 2011, even as mortgage rates dipped, an industry group said on Wednesday.

Applications for U.S. home mortgages fell 4.1 percent in the week ended December 30, weighed down by a 9.6 percent drop in purchase loan requests and a 2.5 percent decline in refinancing requests, seasonally adjusted data from the Mortgage Bankers Association showed.

Average 30-year conforming mortgage rates dipped to the year's low of 4.07 percent from 4.10 percent the prior week, and well below 4.82 percent at the end of 2010.

The slide to near-record-low borrowing rates has spurred more homeowners to seek refinancing, propelling that index up more than 60 percent in 2011.

But demand for loans to buy homes fell in the year, as borrowers struggled to come up with enough cash for down payments or stayed on the sidelines due to worries about unemployment. Some buyers had also leapt into the market in 2010 to take advantage of a first-time buyer tax credit.

The MBA said it does not expect any quick rebound in the mortgage market.

"As part of legislation to extend the payroll tax holiday, guarantee fees for loans purchased by the GSEs and mortgage insurance premiums for FHA loans will eventually increase," Michael Fratantoni, MBA's vice president of research and economics, said in a statement. "Given the announced implementation of this change, we do not expect to see an impact on mortgage rates and application activity until at least February."

Bob Moulton, president of Americana Mortgage Group in Manhasset, New York, said the company's pipeline of loan requests is off to a better start in 2012 than the same time a year ago, boosted by refinancing.

But caution prevails with a big overhang of unsold homes and the presidential election looming, he said.

Refinancing applications represented about 82 percent of total mortgage activity in the latest week, the highest share of the year.

"It's going to be another couple of years until these short sales and foreclosures are flushed out of the system, so you might see a little weakness in prices this year," Moulton added. "We're feeling a little better about 2012 than 2011, but you're always waiting for the next shoe to drop."

The MBA released data for two weeks on Wednesday, rather than one, because of the Christmas and New Year holidays.

In the week ended December 23, total mortgage demand climbed 0.3 percent, with refinancing up 0.5 percent and purchase applications down 0.1 percent.

The survey covers over 75 percent of U.S. retail residential mortgage applications, according to MBA.

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Fed official says more bond purchases may needed (AP)

By MARTIN CRUTSINGER, AP Economics Writer Martin Crutsinger, Ap Economics Writer – Thu Oct 20, 8:37 pm ET

WASHINGTON – A voting member of the Federal Reserve's policy-making committee on Thursday called for the central bank to consider buying mortgage bonds again as a way to spur economic growth.

Daniel Tarullo, a Fed governor, said Thursday that another round of purchases of mortgage-backed securities by the Fed could help the economy by further lowering interest rates, including mortgage rates.

Such a move would be an aggressive step by the central bank to provide support to the economy and boost the depressed housing market.

"I believe we should move back up toward the top of the list of options the large-scale purchases of additional mortgage-backed securities," Tarullo said in his speech at Columbia University in New York. He noted that was something the FOMC first did in November 2008 and then in greater amounts beginning in March 2009.

But it would almost certainly generate opposition within the Fed. Three members of the central bank's policy-making committee have dissented at recent meetings over less dramatic moves, arguing that the Fed risks triggering inflation.

Tarullo is one of 10 Fed officials who have a vote on the Federal Open Market Committee, the panel of Fed governors and regional bank presidents who meet eight times a year to set interest-rate policies.

The next meeting of the panel is Nov. 1-2. There has been speculation in financial markets that the Fed might go further in its campaign to jump-start an economy that many have feared is in danger of slipping back into a recession.

Tarullo's remarks came after Eric Rosengren, president of the Federal Reserve Bank of Boston, said in an interview published Thursday in The Wall Street Journal that he believes the Fed should consider purchasing more securities, including mortgage-backed securities.

Minutes of the Fed's Sept. 20-21 meeting released last week showed that at least two members of the FOMC said that the weakening economy might require additional bond purchases.

In the end, the Fed stopped short of expanding its already massive portfolio of investments. Instead, the central bank opted to shift $400 billion of its investments to try to lower long-term interest rates.

That decision followed the Fed's announcement in August that it planned to keep short-term rates at record lows until at least mid-2013, assuming the economy remains weak.

Both the August and September Fed actions were approved on 7-3 votes. The three dissenting votes represented the largest number in nearly two decades and underscored the deep policy split on the board.

Tarullo, Rosengren and Charles Evans, head of the Chicago Federal Reserve Bank, have argued for stronger policy moves, contending that the economy, with unemployment stuck around 9 percent, needs more help.

The three dissenters, Dallas Fed President Richard Fisher, Minneapolis Fed President Narayana Kocherlakota and Philadelphia Fed President Charles Plosser, contend that the central bank has already driven a key interest rate it controls to a record low near zero and purchased massive amounts of securities. They argue that the Fed has done all it can and further action runs the risk of making inflation worse once the economy gains momentum.

In June, the Fed completed a $600 billion bond-buying program, its second round of large-scale Treasury purchases. Supporters said the bond purchases kept rates low and encouraged spending. But critics charged that it weakened the dollar and stoked inflation risks.

Another major round of bond buying would be the most dramatic move the Fed has left in a dwindling list of options.

Tarullo's discussion of further bond purchases came in a speech in which he examined what he said was an urgent crisis in unemployment with 30 million people either officially unemployed, being forced to work part-time or who had dropped out of the job market because they couldn't find work.

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