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February 2009
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Borrowers Reject Adjustable Rate Mortgage Loans

American homeowners have lost their appetite for once appealing adjustable rate mortgages. A quarterly report from Freddie Mac indicated that 97% of prime borrowers who refinanced adjustable rate mortgages last quarter chose fixed rate mortgage loans. In addition, 99.7% of homeowners who refinanced fixed-rate home loans last quarter chose fixed-rate mortgages again.

The number of homeowners choosing adjustable rate refinancing was significantly lower than the third quarter. “The very low interest rates for fixed-rate loans compared with ARM mortgage rates in the fourth quarter, combined with worries that rates may rise in the future when the economic recession ends, enticed refinancing borrowers to seek the security of long-term fixed-rate mortgages,” said Freddie Mac chief economist Frank Nothaft in a statement. “When borrowers can lock in a rate of 5% or less for 15 years or longer, it’s hard to find a reason not to take it.”

During the fourth quarter, initial interest rates on hybrid adjustable-rate mortgages were close to, or above mortgage interest rates on 15-year and 30-year fixed rate home mortgages. Last week, Freddie Mac reported the average 30 year fixed-rate mortgage had dropped to 5.04 %, down one full percentage point from where thirty-year mortgage loans were a year ago.

Low Mortgage Rates Forecasted

Mortgage interest rates will remain below 5% for the first part of 2009 which could help stabilize home sales and keep a mortgage refinancing trend going, according to a consensus forecast by banking economists. “A surge of home loan refinancing is already under way and lower home prices and interest rates will gradually support an increase in home sales,” said Bruce Kasman, chief economist at JPMorgan Chase.

Mr. Kasman is chairman of the American Bankers Association Economic Advisory Committee, which expects the government’s efforts to stabilize the financial system and stimulate the economy will lead to a recovery in the second half with gross domestic product rising to 3.8% in the 4th quarter of 2009. However, the bank economists see house prices continuing to decline and home loan delinquencies increasing throughout 2009. The home refinancing surge will be “substantial,” predicted Mr. Kasman, noting that a high rate of applications may be rejected and cash out refinance loans will be modest.

Mortgage Rates Rise, Home Refinancing Applications Decline

Unfortunately, not that many homeowners qualify for the low conventional mortgage rates that dipped below 5% a few weeks back. Even FHA home loan programs have experienced changes that require higher credit scores and more equity. Many rejected borrowers remain in search for mortgage modification plans with loan modification agreements that enable existing mortgages to be renegotiated without actually refinancing the mortgage.

Refinancing applications hit their highest levels in years after mortgage rates plummeted to record lows several weeks back, according to the Mortgage Bankers Association. But now that thirty-year fixed rate mortgages have pushed back above 5 %–to still attractive levels–interest in mortgage refinancing appears to be declining.

The Mortgage Bankers Association released its Weekly Mortgage Applications Survey for the week ending January 23, 2009. The Market Composite Index, a measure of mortgage loan application volume, was 732.1, a decrease of 38.8% on a seasonally adjusted basis from 1195.3 one week earlier…

Mortgage interest rates remain at the lowest point in decades and Investment Advisor Jill Schlesinger spoke to Harry Smith about the right time for home-buying.

Home Prices Fall Again Even with Low Mortgage Rates

The Home Refinancing Index declined 48% to 3373.9 from 6491.8 the previous week and the seasonally adjusted Purchase Index decreased 2.9 % to 294.3 from 303.1 one week earlier…The refinance share of mortgage activity decreased to 72.8% of total applications from 83.3% the previous week…The average contract interest rate for 30-year fixed-rate mortgages decreased to 5.22% from 5.24%, with points decreasing to 1.05% (including the origination fee) for 80% loan-to-value (LTV) ratio loans.