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May 9th, 2012

Mortgage rates remain at record lows as refinance plans proposed

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Capitol BuildingRates on the most popular types of mortgages held near record lows, according to HSH.com’s Weekly Mortgage Rates Radar. The average rate for conforming 30-year fixed-rate mortgages was unchanged, remaining at 3.97 percent. Conforming 5/1 Hybrid ARM rates decreased by two basis points, closing the Wednesday-to-Tuesday wraparound weekly survey at average 2.90 percent.

“Employment gains have flagged over the past couple of months, casting some doubt about the strength of the recovery,” said Keith Gumbinger, vice president of HSH.com. “There’s little indication of any strengthening of economic growth at the moment, and it appears that investors have shifted some attention from stocks to bonds of late, pushing rates lower.”

In 2011, after a winter growth spurt, the economy faded into the summer and fall. At this point, it is unclear if we have entered a repeat of that pattern.

“Is this a soft patch in an otherwise upward trend, or are we on the kind of path which prompts the Federal Reserve to additional action? It’s too soon yet to know,” said Gumbinger. “At present, no plan has been announced, but Operation Twist–the Fed’s existing program–expires at the end of June. Between now and then, if things show scant improvement, we might set a few more record lows for mortgage rates.”

Refinance talks underway

Months ago, we discussed how important it was for mortgage rates to remain at low levels as HARP 2.0 was just about to get underway. This week, HUD Secretary Shaun Donovan addressed the Senate Banking Committee saying much of the same. Fearing upward pressure on mortgage rates, administration officials and some democrats have recently urged lawmakers to act on additional refinance efforts, refinance efforts that many have already been dubbed HARP 3.0.

Secretary Donovan addressed two main refinance proposals: a refinance effort led by the FHA and another expansion of the HARP program.

“Under the President’s broad-based refinance proposal, borrowers with standard non-FHA and non-GSE loans would have access to refinancing through a new program operated by the FHA,” Donovan said to the committee. “The refinancing program would be open to all borrowers who are current on their mortgage payments and have standard, non-jumbo loans that are not currently insured by FHA or the GSEs.”

Here’s a quick breakdown of the eligibility criteria (for more information, be sure to read Donovan’s written testimony):

  • You must be current on your mortgage for the last six months, having missed only one payment in the six months prior
  • You have a minimum FICO score of at least 580
  • Your mortgage must fit within the FHA’s conforming loan limits for your area (from $271,050 to $729,750)
  • Must be a single-family, owner-occupied home that’s a principal residence

This effort is designed to be streamlined and less expensive, not requiring an appraisal or tax return. “To determine a borrower’s eligibility, a lender need only confirm that the borrower is employed and meets the eligibility criteria outlined above,” said Donovan.

The structure for another refinance plan–proposed by Democratic Senators Bob Menendez (N.J.) and Barbara Boxer (Calif.)–which could eventually evolve into HARP 3.0, is as follows:

  • Open up streamline refinancing to all GSE borrowers
  • Increase competition between lenders and current servicers to allow borrowers to get the best deal. “The President’s legislative plan would direct the GSEs to require the same streamlined underwriting for new servicers as they do for current servicers, leveling the playing field and unlocking competition between banks for borrowers’ business,” said Donovan. “Specifically, this would eliminate the requirement of any lender to assume representations and warranties that are not required of same servicers. Additionally, the GSEs could not charge any loan level pricing adjustments (LLPAs), post-settlement delivery fees, adverse delivery charges or other similar up-front fees.”
  • No more appraisal costs for borrowers

As you can see, the details surrounding what might be HARP 3.0 are quite thin, and there are even more than one legislative proposal floating around.

Vicki Needham of The Hill reported that “Sens. Jeff Merkley (D-Ore.) and Dianne Feinstein (D-Calif.) also are crafting legislation to remove other barriers and expand refinancing opportunities.”

Will we see HARP 3.0 before this year’s election? I doubt it. I can’t see full Congressional approval.

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About the HSH Blog

HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni

Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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