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Mortgage Bankers Association Says Mortgage Refinance Boom Slowing

[Jun 23, 2009.]


The Mortgage Bankers Asssociation put out a mortgage refinance press release today lowering its projection for home loan origination from $2.7 trillion to $2 trillion, a drop of more than 25 percent. Higher mortgage interest rates were the obvious headline here, but the report from MBA also highlighted some lesser known facts that may be of interest to mortgage refinance hopefuls as this year plays out.

HARP Not Generating Much Action So Far

The "Home Affordable Refinance Program" (HARP) has not resulted in much string music as of yet. Only 13,000 mortgage refinances have been successfully executed thus far by way of this government-backed program that was supposed to help 1.5 to two million homeowners refinance.

Mortgage rates particularly affect the ability of HARP to help homeowners refinance because, using a $417,000 loan amount, a one percent rise in mortgage rates results in a $300 increase in monthly payment, according to Calculators4Mortgages.com. That $300 increase in monthly payment makes it much more difficult to refinance because it throws off the ratios used by lenders to approve a refi.

Government Buying Mortgage Backed Securities, But No One Else Is

The government has given itself permission to purchase a massive amount of long-term Treasury bonds, which are closely tied to mortgage interest rates. The huge influx of money into long-term Treasury bonds, in fact, is what caused the deep dive in mortgage rates earlier this year.

Following the model that had worked so far, the Fed began sinking money into Mortgage Backed Securities owned by Freddie Mac, Fannie Mae, and Ginnie Mae, the government-backed entities that purchase mortgages from lenders.

Problem is, the private investors that were supposed to pile into Mortgage Backed Securities after the government piled on...have not shown up to the party.The Fed itself accounts for more than 85 percent of all MBS purchases.

A possible increase in uncertainty around the world, meanwhile, could bring long-term Treasury buyers back as part of a "flight to safety," the MBA notes. Such a flight should result in lower mortgage rates if it occurs.

Mortgage Refinance Environment Affected by Continuation in Home Price Depreciation

Lower home prices further contributed to the rough mortgage refinance environment, the MBA report asserts. Although overall home sales were up, home prices dropped more than expected and may continue to decline up to 10 percent before bottoming in 2010.

Lower home prices makes refinancing harder because they skew the loan-to-value ratios used by lenders to approve refinances. A rise in home prices, in fact, might be almost as welcome as a drop in mortgage rates from the perspective of many homeowners looking to refinance a home loan.


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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