Median Age of Refinanced Home Loans Oldest Since 1985

After a few great years, refinance activity has taken a bit of a dive.

Ironically, the recent decline is directly attributable to the refinance boom lenders experienced just months before.

One of the major problems with the current situation is that 30-year fixed mortgage rates have remained below 5% for much of the past four years.

And they increased about a percentage point from their lowest levels last seen in late 2012.

[See the latest mortgage rates from dozens of lenders, updated daily.]

 

In other words, pretty much everyone who was able to refinance already did. And there hasn’t been much incentive to refinance again, seeing that rates have just increased over the past year or so.

Nowadays Most Refinances Involve Much Older Loans

 

During the fourth quarter, the median age of the original loan before refinance was a whopping seven years, the oldest in Freddie Mac’s history, which dates back to 1985.

Just to give you an idea of what the median age of such loans looked like in the recent past, we’ll look at the Los Angeles metro area.

Back in 2003 and 2004, the median age of a loan refinanced there was just 1.7 years. These were the days of the serial refinance, when borrowers used their homes as ATM machines.

Many homeowners had contacts at major lenders like Countrywide, and would often be advised to refinance over and over again, often pulling out wads of cash along the way.

This is exactly how we got into trouble to begin with; most of these loans were ARMs, in many cases option ARMs. They were held just long enough to convince the appraiser to tack on another 10-20% in home value.

Before long, these homeowners ran out of options and were holding the proverbial hot potato, otherwise known as an underwater mortgage and an exploding ARM.

Fast forward to 2013, and the median age of a refinanced loan in Los Angeles stood at 5.3 years.

I can’t see it go anywhere but up as time goes on, especially seeing how mortgage rates drifted so very low thanks to the Fed’s successful, but problematic QE3.

It certainly doesn’t set the stage for a subsequent refinance boom anytime soon, which could eventually translate to questionable lending in the near future.

Things that come to mind are the refinancing of previously modified loans, or lowering standards on new purchase loans to drum up business.

Of course, there will still be opportunities for lenders with cash-out refinancing eventually becoming popular again as home prices rise. And there’s always the opportunity to refinance a loan with mortgage insurance.

Still, it could be tough going for a while in the mortgage industry.


Homeowners Are Still Saving a Lot of Money by Refinancing



While my assessment is full of doom and gloom, there are still plenty of homeowners saving a ton of money by refinancing.

During the fourth quarter, the average interest rate reduction was a healthy 1.5%, or a savings of roughly 25%. On a $200,000 loan, that’s an annual savings of about $3,000.

And homeowners who refinanced via HARP saved even more money, with the average interest rate reduction 1.7%. That translates to about $3,300 in annual savings, or $275 a month.

Freddie noted that homeowners who refinanced last year would save approximately $21 billion in interest over the next year.

Borrowers continued to shorten their loan terms, with 39% doing so during the fourth quarter, up two percent from the third quarter and the highest level since 1992. Only five percent chose to increase their loan term.

More than 95% of borrowers chose a fixed-rate loan, with the 30-year fixed far and away the most popular.

Freddie Mac projects the refinance share of mortgage originations to be just 38% in 2014.

source:  thetruthaboutmortgage.com

Refinancing the Mortgage With HARP

A few years back we refinanced our mortgage to get a lower interest rate.  At the time, we were absolutely thrilled to get a 4.875% mortgage.  I never thought I’d see rates that low.  The only drawback was that we’d stretch the loan back out to another 30 year term.  We decided to mitigate that by paying extra all year long.  We did that by signing up for the free biweekly payment program at our credit union and also added another $300 a month on top of that.  That got us back on track to pay our mortgage off much sooner than the 30 year term.

I recently started receiving offers in the mail to refinance our house because our mortgage was backed by Fannie Mae and was eligible to participate in the HARP program (if needed).  As soon as I opened each letter, I put it right in to the shredder though because I don’t trust mailings like that.  It wasn’t until I got a letter from my credit union saying that my loan was backed by Fannie Mae and I might be eligible for a lower interest rate that I really started thinking about it.  When I looked in to the current rates at my credit union, I was disappointed to see that they were significantly higher than other rates I’d seen.  Instead of going through the credit union, I remembered that I’d read about Costco aggressively offering mortgage services through a select group of banks and institutions so I gave them a try.  It turns out that Costco has, once again, squeezed many of the fees out of the process.  In order to work with Costco, banks had to agree to a $600 cap on loan costs for executive members and a $750 cap for regular members.  Normally most banks would charge a 1% loan origination fee so this saved us a nice chunk of money.  Because HARP is involved, I was also happy to hear that I didn’t have to pay for an appraisal.  This saved us another $400.  All in all, it was very cheap to go through the process.  It was also very painless.  All the interaction happened through email and they are going to come to my house to handle the signing of the documents.  The best part about all of this is that we got a 3.625% interest rate on the new mortgage.

While I’ve been really pleased with the whole process, I was kind of shocked at the amount of detail they wanted us to provide.  We both have credit scores over 800, flawless credit, no debt other than the mortgage, and have really good salaries.  Based on the amount of information we had to provide, you’d never believe we were a good credit risk.

In order to process the loan, here’s what we had to provide:

• 3 pay stubs for each of us
• 2010 tax return
• 2011 tax return
• Proof of insurance on primary home
• Proof of insurance on vacation home
• Latest bank statement
• Proof that home equity loan has a zero balance
• Homeowners Association Bill
• W2 for 2010 for each of us
• W2 for 2011 for each of us
• Settlement statement from last refinance a few years ago

Like I said, you’d think we had bad credit or something.  Things have definitely changed since the high flying days of 2008.  If they are doing this much due diligence with us, I’m sure there are a LOT of people that are out of luck when it comes to getting a mortgage.

Anyway, we are glad we’re doing it.  The 3.625% rate is unbelievable.  Between the rate and putting an extra $20,000 in cash to pay down the balance even further, we’re going to see our payment drop by $400 a month.  We’ll actually be paying more than that because we want to pay the house off much earlier than 30 years but it’s nice to know that if we ever lost our jobs or fell on hard times, we’d have a much lower mortgage payment to deal with.

source: everybodylovesyourmoney.com

Mortgage refinances surge to highest level since April 2009

Refi madness is smoking hot.

Reacting to record low mortgage rates, borrowers seeking to lower their monthly payments signed up for lower-cost replacement loans last week in numbers not seen in 3½ years.

A Mortgage Bankers Assn. index of refinance applications jumped 20% last week compared with the week before. Applications to purchase homes were up by 4%, the trade group said in a weekly survey released Wednesday.

Rates were plummeting thanks to a new Federal Reserve program designed to stimulate housing and the economy by purchasing mortgage-backed securities. It was the third round of what’s known as quantitative easing, or QE3 as it’s known to Fed watchers.

Freddie Mac’s widely watched weekly survey pegged the average rate for a 30-year fixed home loan at 3.4% last week. That compared with 3.49% the prior week, 4.01% a year earlier, and a rate of well above 6% for most of 2008. Bankrate.com said Wednesday that the overnight average rate for 30-year loans was 3.39%.

Not since April 2009, as the average 30-year rate crashed the 5% barrier, was demand for refinance loans so high, according to the Mortgage Bankers Assn. The trade group said rates for each of the five types of mortgages that it monitors dropped to record lows.

 “Financial markets continue to adjust to QE3, as the ongoing presence of the Federal Reserve as a significant buyer of mortgage-backed securities applies downward pressure on rates,” MBA economist Mike Fratantoni said in a news release.

The success of an Obama administration effort to encourage refinances was contributing to the surge, according to the mortgage bankers and a separate report Wednesday from Lender Processing Services, a mortgage technology and data provider in Jacksonville, Fla.

Lenders traditionally wouldn’t refinance homes for borrowers whose home loans added up to more than 80% of the value of their homes.

But the latest version of the Home Affordable Refinance Program, or HARP, has spurred a boom in refis of these high loan-to-value mortgages if they are owned or guaranteed by the government-supported mortgage finance companies Freddie Mac or Fannie Mae.

Borrowers with little or no home equity can qualify for the HARP refinances only if they have made every mortgage payment on time for the past six months and have had no more than one late payment in the past year.

source: latimes.com