Mortgage Rates Fall As Do Refinancing Applications

Mortgage Rates Fall As Do Refinancing Applications
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    CNBC real estate reporter Diana Olick had it right when she stated that the current refinancing trends "defies logic."


Record low interest rates does little to attract buyers.

Olick noted that mortgage rates had recently hit new lows, but refinancing applications continued to drop for the third consecutive week.

Home Refinancing

What Olick recognized is that there are other matters at hand including the large number of homeowners still under water, that underwriting remains tight and banks are simply overwhelmed by mortgage processing.

Not all banks are buried deep in applications or unable to handle the load. My bank, Wells Fargo, has been inviting me to refinance for the past few weeks, teasing me with a rate still lower than the 4 percent my wife and I grabbed in March 2011. Several times when I logged into our account online over the past two weeks, a refinancing notice appeared at the top of my screen. We haven’t taken the plunge yet despite the promise of a lower rate and small closing costs. Call it inertia or maybe we’re just waiting for a better offer.

Negative Equity

For everyone else, the problem of owing more on your home than what it is worth continues to loom large. In May, the Zillow Negative Equity Report stated that 31.4 percent of mortgages are under water with these homeowners owing $75,644 more than what their house is worth.

Under water home owners may be able to refinance through Fannie Mae and Freddie Mac as both lenders have expanded the Home Affordable Refinance Program to allow borrowers to refinance even those that are under water. However, other conditions apply including credit history and steady work, the latter still lacking for many people.

Market Variations

Zillow found that the percentage of homeowners in a metropolitan area with negative equity varies dramatically across the country. Homeowners in Midland, Texas, State College, Penn., and in Bismarck, N.D. have generally escaped the problem while markets such as Las Vegas, Phoenix and Atlanta have more than half its homes showing negative equity.

Las Vegas, for example has 71.0 percent of mortgaged homes with negative equity. The average negative equity amount for Vegas homeowners is $105,994 for homes that are now worth an average of just $111,600. In San Jose the average negative equity is far greater at $155,554, but home values are several times higher than Las Vegas, averaging $545,000 for one of the highest rates in the nation.

Housing Market

The falling refinancing applications may also be a sign that the U.S. economy is once again falling back into a recession. Lakshman Achuthan, the co-founder and managing director of the Economic Cycle Research Institute, insists that we’re in a recession right now, explaining to Bloomberg News that job growth has fallen sharply since February. A new recession may keep the housing market from improving, contributing to a further drop off in refinancing applications.



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Categories: Financing

About Author

Matthew C. Keegan

Matt Keegan is a freelance writer and editor as well as publisher of "Auto Trends Magazine", an online publication. Matt covers campus, consumer, business and financial topics on various websites and weblogs, and has been published in the "Houston Chronicle", "Sam's Club Magazine" and "Wisconsin Golfer".