The NYT featured an article on the front page of the business section with a graph showing the Mortgage Bankers' Association (MBA) index for applications for refinancing mortgages. The index shows a sharp spike in recent weeks, which is presumably a response to lower mortgage interest rates.
While applications have undoubtedly risen, the MBA index likely overstates the increase for two reasons. First. MBA members only account for about half of the mortgages issued. Issuers who concentrated on the subprime segment of the market are underrepresented in the MBA. This could mean, that the index is not fully reflecting the collapse of the subprime market. Also, if borrowers shift from non-MBA members (many of whom have shut down) to MBA members, the shift would appear as an increase in applications in the MBA index.
The other reason why the MBA index may overstate the actual increase in refinancing is that it is far more common for mortgage applicants to be denied now than one or two years ago. In the past, the overwhelming majority of applications would have resulted in a mortgage bing issued. Now that banks are far more frequently denying mortgages, the same number of applications would correspond to fewer mortgages being issued. Without data on denial rates, it is impossible to know the extent to which the uptick in applications corresponds to an increase in the number of mortgages being issued.
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