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Is the Great Refinance Boom of 2009 Officially Over?

[Dec 28, 2009.]


Three bits of refinance news came out over the holidays:

1. Mortgage refinance applications dropped by 10.1 percent according to the December 23 weekly survey by the Mortgage Bankers Association.

2. Average 30-year mortgage interest rates ticked up a quarter point, from 5.02 percent to 5.28 percent.

3. New home sales came in weaker than expected.

Taken together, these three bits of refinance news may indicate that the refinance boom of 2009 is ending. But what does that mean for homeowners looking to refinance?

1. Refinance Applications Drop

The major banks have been refinancing qualified borrowers by the hundreds of thousands during 2009. Taking a look at the third quarter earnings of Wells Fargo, for example, shows that mortgage lending can still be an extremely profitable enterprise for banks--especially when the U.S. government is guaranteeing so many millions of mortgages.

The weekly decrease in mortgage refinance applications of 10 percent is not the end of the world, but it may indicate that the majority of borrowers who can refinance, have already refinanced.

2. Mortgage Interest Rates Jump

For homeowners in the refinancing process, a quarter point jump in 30-year mortgage interest rates is big news indeed.

For borrowers who are already close struggling to meet the income ratios demanded by mortgage lenders, this extra hit to the bottom line has the potential to delay or even destroy a refinance deal.

3. New Home Sales Afffect Home Prices

Some conflicting data about home sales has come out over the last month. Existing home sales were up dramatically, but then new home sales were much weaker than expected, at 355,000 versus the expected 421,000.

Homeowners looking to refinance may wonder how to reconcile these two seemingly conflicting numbers, or whether they should even pay attention to home sales figures at all.

To take the second question first, homeowners interested in refinancing should absolutely be concerned with home sales, because home sales are what keeps home prices high or at least stable. Anyone trying to refinance right now knows how important the home appraisal can be, and how dependent it is upon the prices of recent home sales in the neighborhood.

Existing home sales numbers include vast numbers of "distressed sale" properties, such as foreclosures or bank-owned homes. New home sales are therefore probably more important to giving the housing market some upside in terms of prices.

Skilled Mortgage Brokers, Where Art Thou?

The confluence of these three forces appear to portend that refinancing in 2010 may be more difficult than refinancing in 2009--and 2009 was no walk in the park.

Skilled mortgage brokers are thus likely to remain in high demand, even if the volume of loans they close decreases.


About Author:

Andrew Freiburghouse is a writer and businessman. He has worked as a magazine reporter, tax preparer, screenwriter, copywriter, and loan officer. He graduated from Santa Clara University in 1999 with a B.A. in English. Andrew was born and raised in the City of Los Angeles.

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