Fed buys the biggest rise in mortgage applications ever

The Federal Reserve got quite a bit of bang for its buck out of its announcement to buy up to $500 billion worth of Mortgage Backed Securities and up to $100 billion of debt issued by Fannie Mae and Freddie Mac. According to the Mortgage Bankers Association, we just saw the single-biggest weekly rise in applications in the history of the group's index, which dates back to 1990.

The overall index shot up 112% to 857.7 from 404.40 (chart above). The refinance index soared 203.3% to 3802.80 from 1254, while the purchase index climbed a more modest 38% to 361.1 from 261.60. The average rate on a 30-year mortgage, according to the MBA, fell to 5.47% in the week of November 28 from 5.98% a week earlier. That was the lowest since June 2005.

In simple terms, the Fed gave mortgage holders and home shoppers an early Christmas gift. But let's qualify the data a bit here. Conversion rates (submitted applications that actually turn into closed loans) are lower today because qualifying standards are tighter. Many borrowers who apply for loans will also likely find they don't have the equity to refinance, given the decline in home prices. And as long as unemployment is climbing and the economy is weakening, the impact on the home PURCHASE market should be much more muted than the impact on the REFINANCE market. Indeed, purchase applications rose at a relatively modest pace compared with refinance apps.