Mortgage applications are spiking due to historically low interest rates, although most are being filed by homeowners seeking to reduce their current rate through refinancing. Statistics provided by the Mortgage Bankers Association show applications up 4.1% in the second week of August, adding to already steady increase from July. Rates for 30-year mortgages are down to a 50-year low of 4.1%, which has many homeowners saving as much as $300 a month on their payments. Even so, critics note that many applications are denied because the borrower has bad credit or their home has depreciated to a great degree, leaving some of the most in need of refinancing without any leverage. For more on this continue reading the following article from The Street.
U.S. mortgage rates have plunged to a 50-year low, sparking a surge in refinancing that is helping growing numbers of homeowners reduce their borrowing costs.
Freddie Mac, the quasi-government entity that buys and insures mortgages, said on Thursday that an average U.S. 30-year fixed-rate mortgage had dropped to 4.15%, down from 4.32% last week. The average in effect mortgage rate is 5.3%, according to the Bureau of Economic Analysis, suggesting more borrowers could benefit.
Homeowners are looking to take advantage of ultra-low U.S. Treasury yields, which are used to price mortgages, to apply for refinancing. Data from the Mortgage Bankers Association show a 4.1% increase in applications last week, with the sharp upward trend starting at the end of July.
"It’s spurring a lot of people who were really fence-sitting, people who refinanced last year at 4.85% ," said Daniel Kramer, a mortgage broker at United Mortgage Services, servicing affluent areas of New Jersey, New York and Connecticut.
But tougher standards imposed on borrowers by Freddie Mac and its sister company Fannie Mae mean that some homeowners who most need a rate reduction are being denied. Kramer noted that a missed credit card payment several years back could be a barrier to a mortgage.
"Folks who need to refi[nance] for a whole host of reasons but mostly to find some affordability are having a hard time either because they don’t meet the credit threshold … or the property has depreciated," said Marietta Rodriguez, national director of NeighborWorks, which advises struggling homeowners.
One big bank said about 25% of applications were being refused — many to borrowers who would have been deemed creditworthy in the recent past — because their credit scores were too low under new federal policies or the value of their home had fallen, according to appraisers.
Gerald Lipkin, chief executive of New Jersey-based Valley National Bancorp, said people were being denied because of the difficulty of getting a "clean appraisal" value for homes whose prices have fallen sharply since 2007 and credit history problems.
But he said applications at his bank had risen from about 200 a month to 700-1,000 a month, with the average borrower saving $300 a month. "If they have the equity in their home and they’re still employed and can show the income, they’d be foolish not to refinance."
Franklin Codel, executive vice-president of Wells Fargo Home Mortgage, said even borrowers with negative equity could refinance and there was no blanket demand by banks for big downpayments by homebuyers. "I think one of the great myths out there is you can’t buy a house without 20% down," he said.
He also said Wells’ profits margins avoided being squeezed as 92% of its loans were immediately sold on in the secondary market.
This article was republished with permission from The Street.