by Calculated Risk on 2/21/2007 12:11:00 PM

Click on graph for larger image.

This graph shows the MBA Purchase Index since the inception of the index in 1990.

At the end of 2006 there appeared to be a surge in purchase applications. This might have been due to increased activity, or possibly favorable weather.

Another possibility is that because many smaller lenders have closed shop, more potential buyers are applying for loans from the lenders covered by the MBA survey. From the MBA:

The survey covers approximately 50 percent of all U.S. retail residential mortgage originations, and has been conducted weekly since 1990. Respondents include mortgage bankers, commercial banks and thrifts. Base period and value for all indexes is March 16, 1990=100

As an example, suppose 1000 people applied for loans in a given week from 10 lenders.

Lender 1: 250
Lender 2: 150
Lender 3: 100
Lender 4-10: remaining 500 applications.

The MBA survey covers "approximately 50 percent of all U.S. retail residential mortgage originations", so in this example the MBA would only need to survey the top 3 lenders. Now if lender 10 closed shop (with 50 applicants), and the applicants all applied in equal proportions to the other lenders, the MBA index would increase 5% without any increase in overall activity.

My suspicion is this is what happened in late 2006, especially since the increased activity didn't show up in New or Existing home sales.