Turbulence hits mortgage refinancingby Marcie Geffner
Sharply higher interest rates have made for a bumpy ride in mortgage refinancing.
The Federal Housing Finance Agency (FHFA) reported Monday that more than 463,000 loans were refinanced in April, nearly 107,000 of them through the Home Affordable Refinance Program (HARP), which enables some borrowers to refinance even though their mortgage balance exceeds the current value of their home.
The federal agency, which is the chief regulator of secondary-market mortgage companies Fannie Mae and Freddie Mac, said in a statement that the volume of refinance loans “remained high in April as mortgage rates dipped slightly from March.”
Refinances were big back in April
The Mortgage Bankers Association (MBA), a trade group in Washington, D.C., reported in late April that 75 percent of loan applications for the week which ended April 19 were for refinances, while only 25 percent of loan applications for that week were submitted for purchases. Those proportions were unchanged compared with the prior week, the MBA said in a statement at the time.
A lot has changed since then
More recently, the MBA reported that mortgage applications plummeted nearly 12 percent in the week which ended June 28 compared with the prior week. Even more telling, the proportion of refinance applications dropped to 64 percent of the total, the lowest level since May 2011. That meant 36 percent of loan applications were submitted by borrowers who wanted to buy a home.
It’s all about mortgage rates
According to HSH.com, for the week which ended April 19, conforming 30-year fixed-rate mortgages averaged 3.55 percent. Rates were even lower for conforming 15-year fixed-rate mortgages (2.81 percent) and 5/1 Hybrid ARMs (2.59 percent).
In late-June, the average interest rate for those same 30-year mortgages had increased to 4.55 percent, the highest rate since August 2011. The rates for 15-year fixed-rate loans and 5/1 ARMs were higher, too, at 3.66 percent and 3.37 percent, respectively.
Taken together, those figures show interest rates popped nearly one full percentage point in a period of about 10 weeks. That’s a big hit for borrowers.
“At these rates, many fewer homeowners have an incentive to refinance,” said Mike Fratantoni, MBA vice president of research and economics. “Purchase application volume also declined, but not nearly to the same extent, as affordability remains strong.”
Some borrowers responded by choosing an ARM instead of a fixed-rate loan. The proportion of ARM loan applications increased to 8 percent of total applications at the end of June, the highest level since July 2008.