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The Mortgage Bankers Association (MBA) reported mortgage application data for the week ending June 26, 2009.

MBA Purchase Index = 267.7, down 4.5% from last week, down 21.9% y/y.

Refinance Index falls to lowest level since November 2008. After improving a modest 5.9% last week, the seasonally adjusted refinance
index plunged 30.0% in today’s report. Following today’s drop, the refinance index is now down 78% from the end of March. In our view,
the plunge in refinance activity can be traced to: 1) the recent rise in mortgage rates from the sub-5% level, 2) the record number of applicants that have already refinanced in recent months, and 3) growing issues with appraisals stemming from the new Home Valuation
Code of Conduct rules (implemented May 1), where lower than expected home valuations are likely deterring potential refinancings due to the amount of new equity that borrowers would be required to bring to the closing table.

Importantly, from our perspective, this is a discouraging trend for the housing market as well as the general economy. Both benefit from
refinancing activity, as households are able to lower their monthly mortgage payment, thereby decreasing their likelihood of turning
delinquent while increasing their disposable income. Notably, the refinance share of applications is down sharply from ~80% a few months
ago and now only accounts for 46.4% of all applications (down from 54.0% last week).

Purchase applications decline. The MBA Purchase Index also dropped 4.5%, after rising 7.3% last week. Despite this week’s drop, we would
note this index has improved relative to earlier this year. That said, in our view the momentum has clearly slowed in recent weeks, with
the four-week moving average of the weekly purchase index falling 2% from 11 weeks ago. Furthermore, the four-week moving average of
the index is down 23% y/y.

(…) Despite falling ~20 basis points since the week ending June 5, we believe it is important to underscore that effective mortgage rates are up roughly 70 basis points from the 4.8% level seen just a few months ago. While still attractive from a historical perspective, this spike in mortgage rates has contributed to the drop off in refinance activity as well as slowed home purchase activity.

New appraisal code could hamper refinancing and purchase approvals. Following the passage of the new Home Valuation Code of Conduct
(HVCC), conforming single-family mortgages (purchases or refinancings) originated after May 1, 2009, are now required to have independent third-party appraisals. As noted above, we believe this new requirement is making it much more difficult for individuals to refinance or successfully complete a purchase, as many third-party appraisers are reportedly taking very conservative approaches to
valuation by using a larger mix of recent foreclosures and short-sales as comparables.
Raymond James & Associates