Heavy Volume Pushes Refinances

By Mike Colpitts

Record all-time low mortgage rates are getting homeowners to refinance mortgages with the heaviest volume of applicants in more than two years taking refinances back into fashion.

refi toady

Refinancing surged for the first time in three weeks last week, 6.3% on a seasonally adjusted basis, according to the Mortgage Bankers Association. The return in refinancing gives homeowners able to obtain lower rates on mortgages less expensive loan payments.

Homeowners are working on ways to reduce their debt loads, slashing payment costs and shortening the terms on mortgages in unprecedented numbers. The 15-year fixed rate mortgage also reached a new record low last week to 3.30%.

Conventional 30-year fixed rate loans also cut mortgage payment amounts. Homeowners shave off nearly $1,715 annually on interest on a $200,000 mortgage at current record low rates. Economic uncertainty in the  U.S. and abroad, including troubles among the European Union are sending U.S. Treasury rates lower. The drop in bond rates is compounding issues for banks and mortgage companies, which are lowering mortgage rates in order to attract more lending business.

Mortgage borrowers switched to another mortgage type in more than 1 out of 3 refinances during the first quarter of the year, according to Freddie Mac, the highest in seven years. Mortgage bankers also reported a 30% rise in the number of applicants for 15-year fixed rate mortgages during the same period.

Edward DeMarco

A White House plan to refinance more underwater home mortgages is also being studied, but is caught up in the political nature of the times. After announcing that his administration would make efforts to open refinancing to more homeowners, during his speech on jobs, President Barack Obama’s administration backed-off on the prospect following the speech. The Federal Housing Finance Administration (FHFA) is reviewing the mechanics of such a program.

“If there are frictions associated with the origination of HARP loans that can be eased while still achieving the program’s intent of assisting borrowers and reducing credit risk for the enterprises (Freddie Mac and Fannie Mae), we will seek to do so,” said Acting FHFA director Edward DeMarco in a statement released to the media.

“Most creditworthy borrowers outside of the HARP program parameters and with positive equity should be able to refinance their mortgage through normal market mechanisms.”