Everyone I Know Is Trying to Refinance

There’s been a lot of talk (and worry) that the higher mortgage rates of late might derail the apparent housing market recovery.

After all, many believe the only reason things were improving was because of the ultra-low rates the Fed facilitated with the likes of QE3.

Without them, some argue, home prices would have to come back to more realistic levels. And optimism would probably also be somewhat deflated.

Unfortunately, such a scenario was not feasible, seeing that foreclosures were getting out of control, and lower prices would have meant so many more would have lost their homes, either involuntarily or by choice.

Higher Rates Are Motivational

Interestingly, I’ve seen a different reaction, albeit an early one. Many individuals I know who own homes are seeking to refinance their mortgages. Why they didn’t do it last year or even last month is beyond me, but we all know people procrastinate.

Many also grew complacent with the low rates, as it got to a point where one just assumed rates would keep on falling. I’m sure most people figured there was more downside in store, and if rates did happen to rise, they probably would do so slowly.

But now that mortgage rates have shot up in no time at all, it seems to have given many people a kick in the rear to finally go about getting that refinance, even if rates are significantly higher than they were just weeks ago.

One friend of mine seemed content locking in a rate of 4.5% on a 30-year fixed, even though he may have been able to snag a rate of around 3.75% last month.

He didn’t even seem that upset about missing the lower rates, and instead looked at the bigger picture. In the grand scheme of things, a 4.5% 30-year fixed mortgage is still a great deal.

Another pal of mine used the recent rise in rates as motivation to finally start calling around and inquiring about a refinance.

For him, there were home equity issues that made it difficult to refinance (he’s not eligible for HARP). So you can’t blame him for waiting for his home to appreciate a bit more, and alleviate some LTV concerns.

He too seemed happy enough to snag a rate at current levels. He’s even looking at a 15-year mortgage instead of his current 30-year as a way to take advantage of a lower rate and pay down his mortgage faster, without too much of a cost burden.

Possible Mortgage Rate Easing Ahead?

All said, it seems everyone is keeping things in perspective, despite the less attractive pricing of late.

And who knows, we may even see rates fall a bit over the next couple weeks, seeing that they increased so much so fast.

The market probably overreacted to the Fed news, so there’s definitely a chance things could improve in the near-term.

Additionally, the Fed owns a ton of the mortgage-backed securities out there, so they can control the price to some degree, even if everyone else wants to bail.

Whatever direction mortgage rates go in the next month or so, loan originators should stand to benefit from all the last-minute refinancers.

Banks and lenders will probably receive a flurry of refinance applications in coming weeks as more borrowers get off the fence and take advantage before it’s seemingly too late.

Unfortunately, borrowers might have to contend with sizable delays, so if you’re refinancing, get your ducks in a row to avoid any potential mishaps.

As far as home purchases go, the rate increase alone shouldn’t deter too many folks. It may disqualify some if their proposed payments rise too much, but I doubt it would completely dictate one’s decision to buy a home.

Remember, rates would have to rise to about 7% for the median priced home to fall out of reach for the average American family, so there’s still plenty of room.

Read more: Do higher mortgage rates lead to lower home prices?

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for 15 years.

Source: thetruthaboutmortgage.com

Jim Cramer Just Paid Off His Mortgage with Bitcoin Gains

Posted on April 15th, 2021

File this one under bizarre, for several different reasons.

Mad Money host Jim Cramer disclosed yesterday that “he recently paid off a mortgage using profits from his investment in bitcoin.”

He apparently purchased a significant amount of the cryptocurrency back when it was trading at around $12,000, which was actually as recently as last October.

The price of a single bitcoin has launched since then, hitting a record high of around $64,000 this week.

For Cramer, that’s an investment return of about 433%, something he then moved into his mortgage account, which was probably earning a return of say 2-4%, which is the mortgage rate.

He said it was “great to pay off a mortgage,” likening it to using “phony money” to pay for “real money.”

But why would he pay off a home loan that was priced at 2-4%, which is essentially its annual rate of return?

Surely a big-wig investment guru like Jim Cramer could do better than a measly 2-4% in this market, or any market for that matter.

What Is Cramer’s Rush to Be Free and Clear?

  • Mortgage debt is typically the cheapest debt you can own, especially today
  • Yet homeowners are often in a huge rush to pay off their home loans
  • While this could make sense from an emotional or psychological point of view
  • It’s a bit of a head-scratcher coming from an investment guru like Jim Cramer

Now I understand it’s a common goal for homeowners to pay off their home loan(s) in full, to become free and clear on the mortgage.

It’s certainly an achievement, and not something to be frowned upon. But it also is just that, a celebratory moment, not necessarily a financial win.

This is especially true when mortgage rates are near their all-time record lows, with the 30-year fixed priced around 3% today.

Perhaps this infatuation with paying off the mortgage early got started back in the 1970s and ‘80s when interest rates hovered between 10-18%.

That would make a lot more sense, as you’d essentially be carrying what equated to credit card-style debt, and a lot of it.

But why go crazy paying off a 3% mortgage way ahead of schedule? Does it make sense to do so financially, or is it just the emotional victory?

And why is Cramer boasting that he now owns a house “lock, stock and barrel.” What’s the good in that?

He’s proud to have a lot of money tied up in an illiquid asset?

Taking Profits Makes Sense, But Is Cramer Being Too Conservative?

  • He sold some of his bitcoin in order to take profits after a massive run
  • That sounds pretty smart because it’s not a gain until you actually sell it
  • But why did he turn around and settle for such a low rate of return (mortgage rate of 2-4%)
  • Could his profits be better served in an index fund where they might earn triple that conservatively?

Now I understand taking profits, reducing risk, and stashing gains in a safer place after such a historic and massive win.

But why the mortgage, which yields maybe 2-4% as noted, versus say anything else?!

For example, the S&P 500 Index has seen an average annual return of roughly 10%–11% since it got started back in 1926.

While there are certainly good years and bad years, those who hold long-term, which is the preferred method of investing, would see their money grow handsomely.

Cramer essentially settled for paying off a super-cheap mortgage instead of opting for relatively conservative double-digit annual gains, which is surprising.

To sum things up, paying off a mortgage in full can be a crowning achievement, assuming you do it on schedule over the course of several decades.

But rushing to prepay the mortgage might not make the best financial sense, especially with mortgage rates as low as they are now.

Simply put, there’s often a better place for your money. Now if rates go back to 10%, I might change my tune.

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for 15 years.

Source: thetruthaboutmortgage.com

Mortgage Jobs on the Line as Rates Rise

There’s been plenty of debate lately about the potential consequences of rising mortgage rates, with an outright housing recovery derailment topping the list of concerns.

However, most economists have been quick to downplay the risks of rising rates, which have shot up from near-record lows to two-year highs in a matter of months.

In fact, many of these pundits simply expect refinance activity to slow, while the housing market recovery continues on its merry way, in spite of decreased affordability.

Of course, the experts have made some concessions along the way; most recently, Fannie Mae’s Vice President of Applied Economic and Housing Research argued that higher mortgage rates should slow purchase volume and result in a larger adjustable-rate mortgage (ARM) share.

At the same time, Fannie’s researcher didn’t think higher interest rates would lower home prices, but rather only slow the speed of appreciation, which has been on a tear lately.

Then there’s Ara Hovnanian of K. Hovnanian Homes, who argues that higher mortgage rates will just lead to smaller home purchases, and at worst, the purchase of a townhouse if affordability takes a serious dive. Don’t worry, he’s got a smaller home design in the pipeline…

Here Come the Layoffs

All that debate aside, one thing is for certain. There will be fewer mortgage jobs going forward. I anticipated this in my 10 predictions for mortgage and housing in 2013.

It wasn’t hard – I knew mortgage origination forecasts were being slashed going into the year, with refinance volume expected to fall from $1.2 trillion last year to $785 billion in 2013, per the MBA.

Meanwhile, purchase-money mortgage volume was only slated to rise from $503 billion to $585 billion, probably not enough to add many new positions, or offset the fallout in the refinance department.

With volume predicted to be well off recent levels, it didn’t take a genius.

And seeing that rates have increased a lot more than projected, those numbers may turn out to be even worse. For the record, I was wrong about mortgage rates. I expected sideways movement for much of the year. I concede.

Anyway, the mortgage layoffs have already begun, with Wells Fargo announcing late last week that it was cutting 350 employees nationwide as a result of higher home loan rates.

Wells Fargo spokesperson Angie Kaipust said increased demand during the low interest rate environment enjoyed over the past few years meant it could “staff up,” but now that rates are a bit more realistic, headcount must align.

The San Francisco-based bank plans to cut jobs in a number of cities, including Des Moines and Minneapolis.

Then there’s Citi, which reportedly opened a sales facility in Danville, Illinois after demand for mortgage refinances surged. Sadly, the unit is being shuttered, and roughly 120 employees will be laid off.

These are but two examples. Many smaller shops are probably slashing their workforces as well, though such news won’t make the headlines.

2014 Mortgage Origination Forecasts Point to Even Fewer Jobs

The outlook isn’t exactly bright for 2014 either, according to the latest housing forecast from Fannie Mae, so expect more heads to roll as volume continues to dwindle.

Yesterday, the GSE noted that residential lenders are expected to originate just $1.07 trillion in loan volume in 2014, down from $1.65 trillion this year, and about half the $2.03 trillion seen in 2012.

The refinance share, which was 73% in 2012, is expected to fall to 62% this year, and to just 31% in 2014. Only the advent of HARP 3 could make a meaningful impact at this point, and it doesn’t seem likely now.

Fannie expects purchase activity to rise from $619 billion this year to $741 billion in 2014, while refinance activity is forecast to plummet from just over $1 trillion to $331 billion.

Clearly few loan officers will be needed to handle that sharp drop in demand.

Update: It’s starting to feel like 2007 all over again – I’m receiving tips again about branch closures and layoffs. The latest being, “Residential Finance of Columbus Ohio hacked 19 branches yesterday and a regional manager.”

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for 15 years.

Source: thetruthaboutmortgage.com

125% Second Mortgages Are Back Again…

It feels like we’re getting dangerously close to repeating history in the worst way possible.

High-risk loan programs that seemed extinct were perhaps only endangered, as evidenced by a new product launch over at CashCall, an Orange County based company that offers both personal and mortgage loans.

Yep, they’re offering 125% second mortgages, and no, I’m not talking about HARP loans for those underwater on their mortgages.

This is a bona fide “no equity home loan,” a mortgage instrument popular during the housing boom that quickly disappeared once values began to take a dive.

How the 125% Second Mortgage Program Works

Essentially, those who wish to borrow more than their home is worth can apply for one of these loans if they meet certain conditions.

For example, if your home is only worth $200,000, but you want to borrow $250,000, this loan will allow just that.

This differs from a traditional cash-out refinance, which typically requires a homeowner to have some equity buffer, such as 20% or more.

These types of loans worked back in the day on the expectation that home prices would continue to rise over time, and eventually the homeowner wouldn’t be “underwater” any longer.

They failed because (as we all know) home prices eventually stopped going up, and homeowners with giant mortgage balances had already spent the cash elsewhere, and had no intention of paying it back once their property values were cut in half.

This particular 125% second mortgage is a 15-year fixed loan, and only requires a minimum FICO score of 660, which is pretty below average for this level of risk. It must also be an owner-occupied property.

The minimum loan amount is $25,000 and the max is $150,000. For attached condos, they actually limit the CLTV to 100%, seeing that condos are generally deemed higher risk.

Oh, and the max DTI ratio is 50%, though pricing is more favorable for those who keep it at or below 43%.

Speaking of pricing, rates range from as low as 7.49% to as high as 14.99%, depending upon the CLTV.

Here’s the rundown based on what I saw advertised today:

0-80% CLTV: 7.49%
80.01-90% CLTV: 9.49%
90.01-100% CLTV: 11.99%
100.01-125% CLTV: 14.99%

For the record, these mortgage rates are good for those with FICO scores of 700 and higher. I don’t want to know how high the rates are for those with lower scores.

There are also fees of 3% of the loan amount for DTI ratios at or below 43%, and fees of 5% for DTIs between 43.01% and 50%.

What the Heck Is CashCall Thinking?

One last thing I should mention is that this program is only available in California.

The Golden State has been looking good lately in terms of home price appreciation, and it will probably continue to enjoy higher prices as the recovery goes on.

Perhaps this is why CashCall is happy enough to offer extra-high CLTV loans in the state. After all, homes that sold for $500,000 two or three months ago might sell for $600,000 today. It’s out of control.

Additionally, I’m assuming the company relies mainly on refinance business, and because of the recent rise in rates, it lost a lot of business, just like any other shop relying on refinances to bring in the bacon.

So this appears to be a more aggressive move to offer something the competition doesn’t have, which could lead to an uptick in business to make up for that decline in refinancing apps.

Still, it reminds me of why the mortgage boom went bust, and it’s pretty scary that these types of products have returned just a couple years since the market bottomed.

Let’s hope home prices continue to rise…

(photo: Marcin Wichary)

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for 15 years.

Source: thetruthaboutmortgage.com

Purchase Applications Grab Majority Share of Mortgage Market in July as Refinances Fade Away

Posted on August 22nd, 2013

There’s been a lot of fuss about the refinance market drying up lately, and we now know it’s not just noise.

Last month, purchase-money mortgages gobbled up the majority share of the overall mortgage market, according to the latest Origination Insight Report from Ellie Mae.

The company noted that purchases accounted for 53% of applications in July, up from 49% in June and 42% a year earlier.

During 2012, the purchase share averaged a paltry 38% as refinances took center stage, helped on by ridiculously low mortgage rates and the expansion of the successful HARP initiative.

The worst month for purchases in recent history occurred during January of this year, when they accounted for just 27% of the mortgage market.

Since then, they’ve steadily climbed higher into the traditional home buying season, while refinances have retreated amid higher rates.

Refinances Peaked in January with 73% Share

purchase share

What a difference half a year makes. Refinances snagged an astonishing 73% of the mortgage market in January, but since then have seen sequential declines just about every month.

The only bright spot for refis was HARP-related, with high loan-to-value loans (95%+) rising three percent from a month earlier.

However, market watchers expect the overall numbers to move in much the same direction for a while, with refinances eventually slipping to a sub-40% share in 2014.

Unfortunately, most homeowners have already taken advantage of the low rates, with only 55% of existing mortgages currently at above-market rates (not all stand to benefit from a refinance).

[When should you refinance a mortgage?]

Then there’s those who procrastinated and missed the boat, with many presumably considering adjustable-rate mortgages as an alternative.

That’s not just speculation – the ARM-share increased to 5.2% of closed loans in July, up from 4% in June and 2.1% back in January.

Meanwhile, the somewhat en vogue 15-year fixed is beginning to lose its luster, with only 15.5% of borrowers opting for a short-term fixed loan, down from 16.5% a month earlier and 16.9% at the start of the year.

This market shift is also obliterating the mortgage industry, with layoffs beginning to make the headlines seemingly every day.

The latest causalities come from top mortgage lender Wells Fargo, which announced another 2,323 job cuts nationwide, including 365 in Birmingham, 330 in offices around Orange County, CA, and another 292 in Phoenix.

These layoffs are on top of additional job cuts announced last month.

Many other banks have been slashing mortgage workforces as well, which is no surprise given the sharp drop-off in origination volume.

It’s so bad that it almost feels like 2007 all over again, with the bad news forcing me to work on my list of layoffs and closures much more these days.

Credit Is Easing in Mortgage Land

credit quality

Despite that, credit conditions seem to be easing for home loans. Last month, the average FICO score for a closed loan was 737, down from 742 a month earlier and 749 in January. The average FICO score for all of 2012 was a very high 748.

Additionally, only 75% of closed loans in July had FICO scores of 700 or higher, compared to 83% a year ago.

In other words, credit standards seem to be falling as mortgage lenders grapple with lower production numbers, whether that’s correlated or not.

For denied applications, the average FICO score was 702 last month, which probably wasn’t the sole reason the loan was declined.

Lastly, both LTVs and DTI ratios increased in July, signaling credit easing and/or a lower quality borrower. But it certainly helps now that both mortgage rates and home prices are much higher than they once were.

Of course, this shift also kind of reminds me of the previous crisis, though nowhere near that same level…yet.

Read more: A Lack of Qualified Buyers Could Hit the Real Estate Market

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for 15 years.

Source: thetruthaboutmortgage.com

Homeowners with Year-Old Mortgages Are Refinancing Like Crazy

Posted on July 2nd, 2019

A new report from Black Knight revealed that prepayment activity (early payoff of a mortgage) has been surging thanks to the precipitous drop in mortgage rates.

It has more than doubled in just the past four months alone, and is now at its highest level since late 2016.

The biggest driver has been homeowners with very young mortgages, those from the 2018 vintage.

This cohort has seen a more than 300% increase over the past four months, which is no surprise given the current mortgage rate environment.

Mortgage Rates Are Down More Than 1% From November

prepay vintage

Per Freddie Mac, the popular 30-year fixed averaged 3.73% last week, down from a much higher 4.94% in November of last year.

For perspective, it averaged 4.55% during the week ended June 28th, 2018, so today’s borrowers are getting anywhere from a .75% to 1%+ rate discount depending on when they took out their mortgage.

Some consider a refinance beneficial with just a .25% improvement in rate, while others might be more conservative and say .50% or better is necessary.

Whatever your refinance rule of thumb, it’s clear plenty of recent homeowners can save a lot of money, especially since they’ve barely dented their outstanding loan balances.

With no fear of resetting the mortgage clock and starting all over, it’s no surprise these borrowers are refinancing in droves.

The 2018 group has been so busy refinancing that their vintage is roughly 50% higher than the next closest vintage, the 2014 group.

Back then, the 30-year fixed hovered between 4% and about 4.5%. So again, a .25% to .75% rate discount for those borrowers based on today’s lower interest rates.

Refinance Candidates Surge Past 8 Million

refi candidates

The drop in rates has also boosted the refinanceable population to 8.2 million homeowners, defined as those who would benefit and qualify for a mortgage refinance.

That’s 6.3 million more than were eligible in November 2018, including more than 35% of all borrowers who took out a home loan last year.

The 2018 vintage consists of roughly the same number of potential refinance candidates as the 2013-2017 vintages combined, which illustrates the importance of timing.

As noted in my recent post about refinance waiting periods, you don’t have to wait long to turn in your old loan for a new one.

And it’s clear these folks are not, with early estimates suggesting a 30% increase in refis from April to May, and May’s volume expected to be about three times greater than the 10-year low seen in November.

That doesn’t factor in the even lower rates since May, and with home sales also expected to rise, prepayments will likely climb higher in the coming months.

Prepayments by Loan Type

prepay loan type

Now let’s take a closer look at the type of loan being refinanced today.

Overall, the first lien single month mortality (SMM), a measure of prepayment speeds, was 1.23% in May, up 24% from a month earlier.

It’s also up 109% from four months earlier, and now sits well above its five-year average of 1.04%.

Home loans are prepaid for a number of reasons, either to improve the rate and/or term via a rate and term refinance, or to tap equity via a cash out refinance.

It’s also possible to sell a home and pay off the mortgage, to partially pay it back ahead of schedule via curtailment, or to land in default.

Most of the recent refinances were likely rate and term refis as the incentive today is to lower your monthly payment and save on interest.

This is further evidenced by the abundance of tappable equity, with homeowners currently sitting on some $6 trillion of it.

Anyway, the biggest increase in prepayment speeds was seen on government home loans, including FHA loans and VA loans.

Prepays on such loans were up about 2.5X (145%) from four months ago, while prepays on Fannie Mae and Freddie Mac loans were up just less than double (98%).

Meanwhile, portfolio loan prepays were up 131% from four months ago and legacy private label securities were up just 31%.

Unsurprisingly, prepays of adjustable-rate mortgages have also surged to their highest level since 2007 given the super low levels of 30-year fixed mortgage rates, and the weak fixed-to-ARM spread.

Regardless of what type of home loan you have, or when you took it out, now might be a great time to dust off your loan documents to see what your mortgage rate is relative to today’s heavily discounted rates.

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for 15 years.

Source: thetruthaboutmortgage.com

The Cash Out Refi Share Is Above 80%, But There’s a Catch

Posted on November 27th, 2018

While it would appear that borrowers are using their homes as ATMs again, it’s a bit misleading.

Yes, the share of home mortgage refinances that resulted in cash out rose above 80% in the third quarter, per Freddie Mac data, but one must also consider overall loan volume.

Let’s start with the basics here. Of the refinances recorded in the third quarter, an overwhelming 81% resulted in a loan amount 5%+ higher.

That means the homeowner took on a larger loan amount in exchange for some sweet, sweet equity.

These were very common during the lead-up to the housing bubble, and partially why it bubbled to begin with, but became very rare post-crisis.

This is kind of a big deal because the cash out share was in the ~40% range as recently as 2017.

The Cash Out Share Bottomed in 2012

  • The cash out share hit 12% in the second quarter of 2012
  • The lowest since Freddie Mac began compiling records in 1994
  • This was the result of restrictive underwriting guidelines
  • Combined with sinking house values

However, the cash out share was a paltry 12% in the second quarter of 2012, and hovered below 20% for much of the time between 2010 and 2014.

Part of that had to do with the fact that homeowners didn’t have any equity to tap, what with home prices in the gutter and large outstanding mortgage balances ensuring there was nothing left to access.

Further exacerbating the issue was tight underwriting restrictions that limited cash out to very low loan-to-value ratios.

In other words, you basically needed to own your home free and clear or very close to it in order to get some cash out of the property.

Fast forward to 2018 and cash outs are king again, well, at least on paper. That 81% share is the highest since the third quarter of 2007, when the share was a staggering 87%.

It was actually slightly higher in the second and third quarter of 2006, at 89%. What made that even more remarkable was the volume seen at that time.

Not only were cash out refis all the rage, the loan amounts associated were massive thanks to questionable home appraisals and liberal underwriting standards, if you could even call them that.

Pretty much everyone and their mother was taking advantage of the 100% LTV cash out refinance, which when coupled with an option arm or other type of ARM, resulted in an unsustainable monthly payment once financing options dried up.

And as home prices tanked, so too did the incentive to keep the darn mortgage, which is why we experienced the worse housing downturn in decades.

But before we get too concerned about another home equity crisis, we need to consider the volume of these refis today.

Today’s Cash Out Volume Is a Drop in the Bucket

  • If we look beyond refinance share and at volume instead
  • It’s clear that cash out refis aren’t out of control again
  • Less than $15 billion was cashed out in the third quarter
  • It was as high as $84 billion in the second quarter of 2006

In the same report, Freddie lists the total home equity cashed out each quarter, in billions of dollars.

Sure, 81% is an overwhelming share, but it really only speaks to the fact that rate and term refinancing is all but gone, thanks to the recent increase in mortgage rates this past year and change.

Back to that volume – during the third quarter, an estimated $14.6 billion was cashed out. Sounds like a lot, but it’s not, at least relative to what we saw a decade ago.

In the second quarter of 2006, some $84 billion was cashed out of some very artificially inflated homes. That’s nearly six times the volume and doesn’t even factor in inflation over the past decade.

Basically, today’s cash out volume is a drop in the bucket compared to what we saw in the early 2000s.

In a three-year span between 2005 and 2007, more than $800 billion dollars was cashed out of U.S. properties nationwide. Where’d it all go? How much of it was actually paid back?

In 2005, volume was $262.7 billion, followed by $320.5 billion in 2006 and $239.7 billion in 2007.

Throw in 2004 and 2008 and you’re over a trillion dollars. Wow.

For more perspective, annual cash out volume for 2018 will likely be less than $70 billion. And it was only $69.6 billion last year.

Of course, we should certainly keep an eye on volume going forward to see if there’s another home equity party materializing.

Sure, homeowners like their low fixed mortgage rates an awful lot, but there’s a good chance they like cash even more. If and when the cash out volumes get closer to what we saw a decade ago, you can start to worry.

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for 15 years.

Source: thetruthaboutmortgage.com

There Are Still Nearly 90,000 Borrowers Who Could Benefit from a HARP Refinance

Last updated on July 17th, 2018

Before mortgage rates began their recent upward trajectory to start off 2018, quite a few mortgage refinances squeaked through the door.

Some 446,295 refinances were completed by Fannie Mae and Freddie Mac in the fourth quarter of 2017, up considerably from 362,934 in the third quarter, according to the Federal Housing Finance Agency (FHFA).

The FHFA’s Refinance Report for the fourth quarter also revealed that 6,309 loans were refinanced through the Home Affordable Refinance Program (HARP).

Nearly 3.5 Million Homeowners Have Refinanced via HARP

HARP map

  • While 3.5 million homeowners already took advantage of HARP
  • Another 88k still stand to benefit from the program
  • You may want to act quick if it’s you
  • Because mortgage rates are on the rise

With the latest quarter’s numbers now on the books, the total number of HARP refinances completed via the program since inception in 2009 stands at 3,484,025.

It’s oh-so-close to 3.5 million, which even if it doesn’t get that high, would be seen as a very successful campaign to help underwater homeowners take advantage of lower mortgage interest rates.

Speaking of getting to that number, there are still 88,841 borrowers who stand to benefit financially from a HARP refinance, per data from September 30th, 2017.

Sure, mortgage rates have increased since then, but who knows what these near-90,000 borrowers are currently paying. Many borrowers who haven’t refinanced post-mortgage crisis still have fixed rates of 6% and up.

The 30-year fixed is closer to 4.5% today as opposed to the very attractive 4% seen back in September, and there are fears it might move even higher in the interim. Of course, the opposite could happen as well given the big jump we experienced in such a short period of time.

When a HARP Refinance Is Seen as Beneficial

– Borrower has a remaining balance of $50,000+ on their mortgage
– Remaining term of their loan is 10+ years
– Mortgage rate is at least 1.5% higher than current market rates

If a borrower is able to meet general HARP requirements and has the attributes mentioned above, a HARP refinance can be worthwhile.

Those ~90k borrowers could save an average of $2,290 each year by refinancing their mortgage through HARP, which is roughly $190 per month. Not too shabby.

So where are these remaining borrowers you ask? Well, most (70%) are concentrated in the states of Alabama, Florida, Georgia, Illinois, Maryland, Michigan, New Jersey, Ohio, Pennsylvania, and the territory of Puerto Rico.

The metro of Chicago has the most eligible borrowers (8,131), followed by New York-Newark-Jersey City (5,308) and San Juan-Caguas-Guaynabo, PR (5,168).

But nearly every state has homeowners who could benefit, aside from Alaska, Guam, Montana, the Dakotas, and the U.S. Virgin Islands.

For the record, 26% of underwater borrowers who refinanced via HARP opted for 15-year and 20-year fixed mortgages, both of which accrue equity significantly faster than the more popular 30-year fixed.

And those who refinanced their mortgages via HARP exhibited lower delinquency rates compared to homeowners eligible for HARP who didn’t refinance through the program.

Lastly, despite the massive home price increases seen over the past few years, five percent of HARP refinances in December had a loan‐to‐value ratio (LTV) greater than 125%. So not everyone is out of the woods just yet…

FYI, this is the final year for HARP before it’s replaced by the High LTV Streamlined Refinance program.

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for 15 years.

Source: thetruthaboutmortgage.com

Higher Mortgage Rates May Exacerbate Already White-Hot Housing Market

Posted on March 25th, 2021

You’ve seen the headlines – mortgage rates have jumped from recent all-time lows. And they’re seemingly on an upward spiral that can’t be stopped.

Except, they’ve actually seen some improvement over the past few days, thanks in part to the recent stock market rout, coupled with an easing in the 10-year bond yield.

Still, the 30-year fixed is pricing about .50% higher than it did at the start of 2021, when it was closer to 2.65%.

Today, your quoted rate might be closer to 3%, though some lenders are back to offering sub-3% rates too with limited or no lender fees.

Higher Mortgage Rates May Just Make Matters Worse

  • There’s already a record low supply of homes for sale
  • And intense bidding wars are becoming all too common these days
  • The threat of even higher mortgage rates may just compel more buyers to enter the fray
  • That could result in even higher home prices as more buyers clamor over what’s out there

Let’s face it, there aren’t many available homes on the market at the moment. This has been the case for a while now, and hasn’t improved one bit lately.

Meanwhile, home prices are on a tear and record home purchase activity is expected in 2021 despite higher rates.

The median home price has already increased 17% year over year to $330,250, an all-time high, per Redfin.

That also happens to be the biggest increase on record, which goes back through 2016.

On top of that, asking prices of newly-listed properties hit an all-time high of $350,972, up 10% from the same period a year ago.

Oh, and new listings haven fallen 17% from a year earlier. Good luck.

In other words, if you thought homes were expensive last year, don’t look now! And if you thought competition was intense in 2020, well, hmm…yeah.

The good news is mortgage rates are still lower today than they were a year ago, with the 30-year fixed averaging 3.17% at last glance, down from 3.50% during the same week in 2020.

The bad news is that the threat of increasing rates may actually be pushing more prospective buyers off the fence and into the mix.

If more folks think the end of the low mortgage rate era is upon us, they might finally take action.

In the past when this type of thing has happened, the housing market has held up just fine.

Don’t buy into the idea that home prices and mortgage rates have an inverse relationship. In many cases, both can rise or fall in tandem.

Ultimately, you want to pay attention to the economy to determine the direction of the mortgage rates, not home prices.

What Happens When Mortgage Rates Go Higher?

  • Home prices may also increase because there’s no inverse relationship
  • Bidding wars may become even more intense as urgency rises among buyers
  • Mortgage lenders may loosen underwriting guidelines to facilitate home sales
  • Home builders may build smaller homes and/or cheaper ones to maintain some sense of affordability

If and when mortgage rates do increase, and actually stay elevated for a sustained period of time, a variety of things may happen.

For one, home prices may increase, for a couple different reasons. For one, there will be more urgency to lock in that low mortgage rate before they worsen even further.

Compounding that will be even more bidders on each home out there, which will further drive up the final sales price.

Additionally, higher interest rates are a sign of an improving economy, so if things are looking up, so too might home prices.

At the same time, mortgage lenders may ease up and loosen underwriting guidelines to ensure borrowers can obtain a home loan.

And home builders may take notice and make adjustments to the new homes they build by making them smaller and/or cheaper.

They might also ramp up their volume to satisfy the intense demand from prospective buyers. This is usually where things go wrong and we overshoot the mark.

Why It Might Be Good to Wait for a Pullback

While there’s a sense mortgage rates may never revisit their recent all-time lows, it’s also foolish to believe that.

Why can’t they go back to where they were just a few months ago? I liken it to the stock market, where human psychology plays a big role.

One day, stocks are flying high and everyone is piling in. The next day, it’s doom and gloom and everyone’s thinking about selling.

This mentality is exactly how/why many retail investors get burned, assuming they attempt to time the market.

With the recent rise in mortgage rates, you might think it’s best just to accept the higher rate before things get even worse.

And while that’s not imprudent, it’s time like these where we often see reversals. When all hope is gone, things suddenly improve.

Of course, this won’t do the hot housing market any favors. Either way, it’s not going to get any easier to submit a winning bid on a home, whether mortgage rates go up or down.

Read more: 2021 Home Buying Tips to Help You Win

Source: thetruthaboutmortgage.com

The FHFA Just Launched a National Campaign for HARP Four Years After the Program Was Created

Posted on September 23rd, 2013

This morning the FHFA launched a national campaign to educate homeowners about the Home Affordable Refinance Program (HARP).

While that sounds like a sensible move to promote the underwater refinancing program, it comes four years after the initiative was originally announced back in 2009.

And that’s why it’s a bit of a head-scratcher. Why now? We’ll get to that in a moment.

A New HARP Website That Doesn’t Work, Yet

As part of the campaign, the FHFA has launched a website (www.HARP.gov), which doesn’t actually work at the moment. Oops.

Hopefully it will work sometime in the near future, but right now, it’s not a live website.

However, there’s already a pretty solid overview and eligibility matrix for HARP over at MakingHomeAffordable.gov, which makes you wonder why they’re launching another website.

I suppose it’s important to dedicate a single website to an important program like HARP, but you still have to question why now?

The website issues aside, the FHFA said it also “working with mortgage companies across the U.S.” to promote the program, and has partnered with HGTV personality Mike Aubrey to get the word out.

Again, that all sounds great, except for the fact that mortgage companies have been heavily promoting the program for years now.

And more than 2.8 million homeowners have already refinanced via HARP since its inception.

Oh, and the HARP-share of refinance applications hit a record high 40% during the week ending September 13, according to the MBA, up from 38% a week earlier.

So Why the Late Push for HARP?

It sounds like everything is going swimmingly for HARP, so why is the FHFA pushing the program in 2013, now that interest rates have risen from their record lows

Well, there are a couple hypotheses here. The obvious guess is that the mortgage market is coming to a crawl, and the only sector that seems to be growing is HARP.

So in order to get even more refinance applications through the door, the FHFA is making a final push for the program, which is slated to come to an end on December 31, 2015.

After all, there are still plenty of homeowners out there that somehow haven’t heard of HARP, which while hard to believe, is true. I’ve personally encountered tons of people who had no idea the program existed.

But could it be something bigger? Is it possible that new changes are coming to HARP finally? Is “HARP 3” about to arrive?

That’s uncertain, though now that refinance volume has plummeted, there’s a real possibility that the program could be expanded to help more borrowers take advantage of mortgage rates that are still relatively low.

And if you’re wondering how many borrowers could benefit from expanded guidelines, the number is close to half a million.

In case you missed it, back in July a pair of Fed researchers determined that removing the HARP cutoff date and allowing reHARPing would put roughly 452,000 borrowers back “in-the-money.”

So maybe, just maybe, this new campaign will be accompanied by new guidelines for HARP, which would certainly be good news for both lenders and struggling homeowners.

Stay tuned. And keep checking that HARP website…it’ll work eventually.

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for 15 years.

Source: thetruthaboutmortgage.com