Posts Tagged Refinancing
The chart above tracks interest rates over the past 200 years. We are experiencing interest rates nearly as low as anytime over that period of time. Our challenge is making those rates available for the average home purchaser. We continue to see underwriting guidelines that penalize the home buyer with relatively solid credit, good income, and sufficient cash for a down payment. Lenders obviously got burned during the recession but they are turning away good business. It makes no sense. I don’t see the housing market making a strong recovery until lenders change their lending practices.
In the meantime, those buyers who can qualify for a mortgage will get an incredible deal. Kim and I are considering refinancing again after refinancing just last year. I’m a firm believer in the quote “It’s not the price but the terms” and the terms are pretty good at the moment.
Thanks to Devon DeCrausaz, Branch Manager & Vice President at MegaStar Financial Corp for use of the chart. MegaStar is one of the few lenders with common sense lending practices.
By: Diana Olick
CNBC Real Estate Reporter
Mortgage rates hit new lows and applications to refinance fell for the third straight week. It defies logic, unless of course you operate in today’s tight mortgage market.
It’s not just about the rate anymore. Negative equity, strict underwriting and big bank backlogs are keeping many borrowers from taking advantage of these incredibly low mortgage rates.
“If history is any lesson, the only thing that can really extend refi activity in a low rate environment is a loosening of underwriting standards to bring more borrowers into the market. And that is not likely to happen anytime soon,” said Guy Cecala of Inside Mortgage Finance.
Twice this year the market did see a surge in refinancing, all due to changes in government programs.
At the beginning of the year, Fannie Mae and Freddie Mac (still under government conservatorship), expanded the Home Affordable Refinance Program for borrowers who owe more on their mortgages than their homes are worth. The limit used to be 25 percent negative equity, but in January, that limit was lifted entirely.
Then in June, the FHA changed the rules on its streamline refi program for borrowers who already have FHA loans, dropping underwriting almost entirely. While both changes sparked temporary surges, they were not enough to serve the entire market.
“We are definitely running out of borrowers to refi even with mortgages rates at record lows. Most of the activity we have seen in recent months are the same borrowers who refinanced a year or so ago, refinancing again. While programs like HARP and FHA’s Streamlined Refi can provide a temporary surge in refis, they still only account for a relatively small share of borrowers,” Cecala noted.
Government-backed mortgages (Fannie Mae, Freddie Mac, Ginnie Mae) accounted for 58 percent of the $10.179 trillion U.S. mortgage market as of the end of March, 2012, according to data compiled by Inside Mortgage Finance.
Private-label mortgage-backed securities (MBS) investors held 10 percent and banks/other financial institutions held 32 percent. It’s that non-government, 42 percent of the market that is having the most trouble refinancing due to poor credit scores and negative equity. Lenders and investors are particularly risk-averse these days.
Thursday the Obama Administration will renew its push for a major refinancing program that would involve all loans, but it would need congressional approval. There are several proposals under consideration.
The “Responsible Homeowners Refinancing Act,” sponsored by Senators Barbara Boxer, D-Calif., and Robert Menendez, D-NJ, would expand the HARP program, extending streamlined refinancing for Fannie and Freddie borrowers and eliminating up-front fees and appraisal costs. Jaret Seiberg at Guggenheim Partners puts the odds of that passing at around 60 percent.
Seiberg is less optimistic about another bill that would allow non-agency mortgages refinance into FHA loans, regardless of negative equity. The bill would raise GSE (Fannie and Freddie) guarantee fees to offset its costs.
“MBS investors are likely in for a bumpy ride. As we believe Congress will not enact the legislation, there should not be any changes to prepayment rates. Yet the market is likely to react to every headline, which suggests significant volatility,” Seiberg wrote.
Still, the White House will hold a webcast Thursday with HUD Secretary Shaun Donovan, along with a consumer-friendly interactive refi website. This “Google+ Hangout” will be hosted by real estate website Zillow [Z 38.77 -0.10 (-0.26%) ], and Zillow’s CEO Spencer Rascoff will join in the conversation. Donovan and Rascoff will answer consumers’ questions, knowing full well that the answer to many will be, ‘Right now you don’t qualify for a refinance.’
I was somewhat shocked when a few months ago Wells Fargo (they hold our 1st mortgage) called and asked if I wanted to refinance at a rate about 1% below where I was at. They said the closing costs were minimal and an appraisal wasn’t needed. I just needed to confirm that our employment situation hadn’t changed for Kim and I. I asked what was the catch? It seemed rather strange for a bank to call me and ask if I wanted to lower my interest rate on my mortgage so they would make less money.
I started thinking about it and realized they were concerned about losing my business. I had been considering refinancing with another lender. It probably helped that we had high credit scores and no missed payments.
So we signed our name a few times and sat back while Wells Fargo did their thing. After about 6 weeks, they said the docs were ready and we could close.
We went to the title company yesterday and lowered our monthly payments by over $400! Yeeeee Hawwww! Our closing costs were so low we can pay those off in about 4 months.
It is a strange world to say the least. People wanting new loans struggle to qualify in this lending environment but then lenders are turning around and giving away money at lower interest rates. There is something seriously wrong with this picture. I think I know the answer but I don’t want to get political, only celebrate that we were on the right side of this transaction.