Mortgage Loan Applications Increased as Interest Rates Rose
Bloomberg reported this week that mortgage loan applications in the U.S. gained last week, helped by affordable mortgage rates that enticed homeowners to seek mortgage refinancing. The Mortgage Bankers Association’s index of applications to purchase a home or refinance a loan rose 2.3% to 915.9 in the week ended May 15th, from 895.6 the week before. The group’s refinancing gauge increased 4.5%. The average rate on a thirty-year fixed mortgage loans fell for the second straight week and was near the record low reached at the end of March.
Lower borrowing costs, supported by an increase in Federal Reserve purchases of longer-term securities, and reduced prices are boosting mortgage rates for home refinancing and purchases of homes and may help settle the slumping housing market. “The broader housing market certainly looks to be stabilizing,” Zach Pandl, an economist at Nomura Securities International Inc. in New York, said before the report. “Home loan applications responded very well to the Fed’s purchases of Treasuries and mortgage-backed securities.” The mortgage bankers Association reported that their mortgage refinancing gauge rose to 4,794.4, from 4,588.6 the previous week. The purchase index fell 4.4% to 254 last week, from 265.7 the week before. The share of applicants seeking to refinance loans rose to 73.6% of total applications last week from 71.9%.
Mortgage Interest Rates May Reduced by the Fed Again
The mortgage industry has been awaiting some good news and Michigan homeowners have been waiting out the present state-wide housing slump that could receive a big boost, particularly for those looking to refinance. If you thought mortgage rates couldn’t fall any further, think again. Some economists expect the Federal Reserve to reduce current mortgage interest rates as low as 3.85 %. That would be truly amazing. I don’t know if mortgage rates have ever been that low,” said Amanda Crews, the housing director at Metro Housing in Flint.
Fed Cuts Rates to Target Range of 0%-0.25%
Watch Roundtable Reaction to the Federal Reserve and Potential Mortgage Rate Cuts.
Currently, conventional home mortgages are being published below 5%. Just a few months back, they were in the low 6% range. A cut below four % could save home owners a ton of cash. “One thousand dollars a year for every point for a $100,000 loan — two points. That would save a borrower $200 a month after refinancing a $100,000 mortgage loan.”
The average rate on 30-year fixed mortgage loans rose last week to 5.12 %, from a record low of 4.96 % a week earlier, according McLean, Virginia-based Freddie Mac. After the Federal Reserve announced plans to buy $500 billion of bad credit home loan security bonds, rates fell from 6.46 % in October, about tripling the pace of home loan applications between the four weeks ended Jan. 16 and Nov. 21, according to the Mortgage Bankers Association. If mortgage lenders introduced even lower rates, they would not be able to handle the resulting surge in applications, Heiden said. “As mortgage interest rates improve, volume increases,” she said.
Fed Wants U.S. to Play Role in Mortgage Loan Securities
Federal Reserve Chairman Ben Bernanke sketched out a blueprint for handling the mortgage-loan crisis which has become a key issue both presidential candidate. Speaking to a mortgage-finance symposium in Berkeley, Calif., by videoconference Friday, Mr. Bernanke said policy makers may need to maintain a key role in mortgage securitization regardless of the fate determined for government-sponsored entities Fannie Mae and Freddie Mac. Among the choices he outlined was creating a government bond insurer for mortgage funding. “Government likely has a role to play in supporting mortgage securitization, at least during periods of high financial stress,” Mr. Bernanke said.
The government on Sept. 7 seized Fannie and Freddie, which together own or guarantee half the nation’s mortgage loans, after months of uncertainty about their future. The government’s action initially alleviated some pressure on the mortgage refinance market. But the financial crisis has pushed consumer mortgage rates up, weighing on the housing market. According to financial publisher HSH Associates the average for 30-year fixed-rate mortgage refinance loans conforming to Fannie and Freddie standards was 6.63%, , up from 6.34% in early September before the government put the firms into conservatorship.
According to former IHE home equity executive, Dan Ambrose, “the market for mortgage refinancing has been damaged in the wake of the foreclosure crisis and the lure of the low rate loan modification. The mortgage industry needs a lot more than the Federal Reserve dropping the interest rates a few times. Ambrose continued, “The housing sector desperately needs restored confidence and attractive mortgages with secure lending guidelines are essential.”
Government-sponsored lenders have been the only firms producing and selling mortgage-backed securities to investors during the recent credit crunch. “Their ability to continue to securitize when private firms could not did not appear to result from superior business models or management,” Mr. Bernanke said. “Instead, investors remained willing to accept GSE mortgage-backed securities because they continued to believe that the government stood behind them.” Having Fannie and Freddie compete as private firms — perhaps after breaking them into smaller units — would eliminate the conflict between private shareholders and public policy, diminish risks to the overall economy and financial system and allow them to be more innovative by operating with less political interference, Mr. Bernanke said. But “whether the GSE model is viable without at least implicit government support is an open question,” he said. Even under privatization, Mr. Bernanke said “it would seem advisable” to provide government support for the mortgage-securitization process during periods of turmoil. He cited FHA home loans as a great mortgage system. Bernanke may develop a government bond insurer, modeled on the Federal Deposit Insurance Corp., to provide government-backed insurance for bond financing to fund mortgage markets. As an alternative, Mr. Bernanke suggested covered bonds and debt issued by financial institutions and backed by a pool of high-quality assets with extensive regulation. Covered bonds have been used frequently in Europe as the focal point of home loan funding.
As a third option, he said the home loan firms could be tied even more closely to the government through a public-utility model or a cooperative between mortgage loan originators and the government-sponsored FHA mortgage firms. “A public-utility model might allow the enterprise to retain some of the flexibility and innovation associated with private-sector enterprises in which management is accountable to its shareholders,” Mr. Bernanke said. Mr. Bernanke’s comments came as the latest economic data showed a nation retrenching. Read the complete article by James R. Hagerty article.
Home Loans Defaults Rise for Mortgage Insurers
According to a report by Mortgage Insurance Companies of America or MICA, home loan defaults rose in September. CNN Money reported that September saw 76,776 insured mortgage loans went into default, or became 60 days past due, up from 72,818 the month before, and the highest monthly total in a year. In April, one mortgage lender changed its default reporting, making figures before April not directly comparable to monthly figures since then, MICA said. Mortgage cures, or home mortgages that are brought current, decreased by 383 to 41,400 in September from the previous month.
The number of applications for primary mortgage insurance dropped by 3,337 in September to 62,209 the lowest monthly number in at least a year. New policies issued dropped to 49,544, the lowest monthly total for the year, for a total insured amount of $8.1 billion. After a month with no bulk mortgage loan activity, 164 bulk mortgage insurance policies were issued, for a total value of $35.9 million.
MICA’s members reported a total of $801.3 billion in primary insurance in force for the month of September, $350 million less than in August.The statistics in this month’s report include data from AIG United Guaranty, a unit of American International Group (AIG); Genworth Mortgage Insurance Corp., a unit of Genworth Financial (GNW); Mortgage Guaranty Insurance Corp. (MTG); PMI Mortgage Insurance Co., a unit of PMI Group (PMI); and Republic Mortgage Insurance Co., a unit of Old Republic International (ORI).
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