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FALL IN MORTGAGE-LOAN APPLICATIONS COINCIDES WITH FALLING INTEREST RATES

The Mortgage Bankers Association of America said its weekly survey of lenders showed rates on conventional mortgages sank as loan applications declined.

Interest rates had been moving steadily lower in step with the Federal Reserve's methodical cut in the discount rate on July 2 to 3 percent - its lowest level in 29 years.In its weekly survey of lenders, the Washington-based group said its latest survey of selected member banks showed the average effective rate on the popular 30-year mortgage declined 20 basis points while loan applications declined about 7 percent.

Refinancings represented 56 percent of their total applications, down about about 2 percent from the previous week, the group said.

MBA noted the decline in applications was due to the Labor Day holiday.

Mortgage rates, which climbed to a record 18.66 percent in October 1981, have been hovering at their lowest levels since 1972, when homebuyers could purchase housing for as low as 7.29 percent, excluding points and fees.

The popular 30-year conventional mortgage, including points and fees, sank to 7.7 percent from 7.9 percent last week and the 7.8 percent lenders had been asking for the previous two weeks, MBA said.

The association noted the fixed 30-year loan usually carries 2 percent in additional fees and accounted for about 10 percent of all loan activity.

The group adjusts mortgage rates according to prices that mortgage-backed securities bring in the secondary bond market, said Richard Peach, deputy chief economist of the asssociation.

The mortgage group said the 15-year conventional, fixed-rate mortgage, which carries an additional 1.9 percent in fees, slipped to 7.2 percent from 7.4 percent last week and the 7.3 percent level two weeks earlier.

The seven-year balloon loan, excluding points and fees of 2 percent, eased to 6.8 percent from the 7 percent that institutions had been asking the previous two weeks.

Five-year balloon mortgages, excluding 1.9 percent in fees, fell to 6.3 percent from 6.6 percent level of the previous three weeks.

Seven- and 5-year balloon loans accounted for about 5.0 percent of all mortgage applications, down slightly from 5.1 percent last week.

The one-year adjusted rate mortgage, as measured by one-year U.S. Treasury notes, inched up to 5 percent from 4.9 percent last week, back to the level lenders had been asking over the previous five weeks. It carries 1.7 percent in fees.

In the latest week, the association said, the dollar volume of mortgage applications at respondent firms hovered around $2.8 billion, down about 2 percent from last week.

The group said the average size of a conventional mortgage sank to $114,649 from $118,001 in the preceding week and $117,037 two weeks earlier.

MBA noted the average size of a conventional mortgage application dropped to $121,263 from $125,334 during the previous week and remained below the $124,426 average two weeks earlier.

FHA and VA mortgages, currently at 8 percent and accounting for slightly more than 34.4 percent of all loan applications, eased to an average $85,538 from $86,378 the prior week and $84,165, the association said.

Last week the Federal Home Loan Mortgage Corp. reported interest rates on the popular 30-year loan fell to an average 7.94 percent, from 8.01 percent lenders were asking in the previous week.