Mortgage applications are up sharply as homeowners try to take advantage of low 30 year fixed rates. But tighter lending standards means that a fair number will be disappointed.
Moreover, the surge in mortgage applications is for refinances rather than new home purchases. And while refis will indirectly help the economy by increasing consumer discretionary income, the newly low mortgage rates do not yet appear to be stabilizing the housing market.
From the Financial Times:
Applications for home loans more than doubled in the two weeks after the Federal Reserve said it would buy mortgage bonds to help stabilise the market, prompting mortgage rates to fall by more than three-quarters of a percentage point.
With average rates for a 30-year, fixed-rate mortgage now at about 5.2 per cent, growing numbers of borrowers have an incentive to refinance to bring down their mortgage costs.
But tighter underwriting standards for prospective borrowers, combined with funding and staffing difficulties for mortgage originators, are likely to restrict the supply of new mortgages.
“The mortgage industry is collectively unprepared to deal with a cascade of business; staffs were pared to the bone as the market for mortgages shrank over the past year,” analysts at HSH Associates wrote in a note to clients.
Mahesh Swaminathan, mortgage analyst at Credit Suisse, said that as a result, lower rates would not necessarily create a wave of mortgage refinancing on the scale that was seen in 2003, when credit markets were healthy.
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if lower interest rates does not result in increased lending, then refis does not really increase consumer discretionary income. it is merely shifting wealth from savers to borrowers. As a saver, my income has been diminishing in the past year…
I seriously doubt there will be a tsunami of refi’s coming up next year, unless mortgage
rates drop below 3%, with The 30 year Treasury going below 2%. The other factor will be increased foreclosures and an increase in available homes driving prices a bit lower, so IMHO, there will be no rush to go sign up for a crap loan from some bank or mortgage lender that smells like GM, Ford, AIG, BAC, Wamu or about a thousand corrupt lenders that are begging for cash and bailouts!
Investors are not going to suddenly trust entities that remain dependent on fraud and in the hands of crooks; thus, if our government continues to fail to prosecute these criminals that are being bailed out, any recovery attempts will be delayed by many years.
How can you re-fi when housing is falling in value? Duh!
Fannie and Freddie have a plan where by you can make up a value for your property. This will get round Loan to value restrictions and allow borrowers to access cheaper mortgages. I don’t know who is going to buy agencies bonds though as a result because you will have no idea what the risks are. I guess that is where the taxpayer comes in.
There will be a wave of refinancing as a result, but it will be by those who are not in difficulty. Those with the means to afford the costs of refinancing who will benefit. We wait with baited breath though as they announce soon no charges for refinancing with the taxpayer picking up the bill. This is yet another case of targeted action missing the target with a few gaming agency actions to their benefit.
Decision makers are yet again behind the action and on the wrong page. The new paradigm is about forced selling due to job losses and it is here that perhaps Europe is leading the way with appropriate action. Lenders across Europe are giving borrowers the ability to have up to a two year holiday from mortgage payments while they get back on their feet. Debt is not written off and will need to be paid eventually but forced selling ought to be eased as will house price declines.
There is a large demand for refis. If the private sector is unable to meet the demand, why shouldn’t the Gov’t do it? Borrowing at 0-2.5% and lending at 4.5-5.5% seems like a pretty good deal.
I refi’d to a 5.25% mortgage in 2005. There was no stability in the housing market then as prices kept going higher very quickly.
So why would there be any rational reason to expect the housing market to stabilize with 5.25% interest now?
Borrowing at 0-2.5% and lending at 4.5-5.5% seems like a pretty good deal.
OK.
But if the government is going to undercut the private sector on price, logically the government can’t be bitching about the private sector lot lending.
Dumping is dumping.
Sorry, “not lending”.
There will certainly be demand, and it is ludicrous to suppose supply can’t keep up with demand do to labor shortage.
Patrick is right, the gov’t will pick up any slack in private entities to do mortgage originations. That is what the FHA is for.
Refi activity btw is already soaring since November. November is so 2008, Dec data will be so 2009