Super-low mortgage rates have yet to spur a rebound in home sales, but the low rates have generated a surge in applications for refinancing as cash-strapped homeowners look for ways to cut their housing costs.
The problem for many homeowners, however, is that they don’t have enough equity in their homes to qualify for the jaw-dropping rates. And that’s true even if they’ve lived in their homes for many years and have excellent credit and steady incomes, local experts say.
You have to have an absolutely perfect, clear credit report…and 20 percent equity in your house or you won’t get a mortgage today. Mike Van Buskirk, president of the Ohio Bankers League.
Possible future new lending rules that would require banks to retain a stake in all but the safest mortgages have made lenders reluctant to refinance mortgages with low equity.
That hasn’t stopped homeowners from trying to capitalize on the low rates, which could save them hundreds of dollars a month on their mortgages. The potential savings helped push the refinance share of mortgage activity to 78.8% of total applications last week from 75.6% in the previous week, the highest the refinance share has been since November 2010, according to the latest figures available from the Mortgage Bankers Association.
The surge in refinance activity has been driven by historically low interest rates, which have hovered below 4.5% for more than a year and fell to 4.15% this week on 30-year fixed-rate mortgages, the lowest rate in more than 50 years, housing lender Freddie Mac reported Thursday. Rates on 15-year fixed mortgages, the most popular refinancing option, fell to a record-low 3.36%.
Most homeowners are paying rates more than a full percentage point higher than the current average, according to Freddie, which reports the average rate on all outstanding mortgages is 5.3%.
“Rates are unlikely to be this low again in our lifetime,’’ Van Buskirk said. But, he added, “fewer than normal, refinancing applications are likely to be approved.”
According to Fannie Mae’s Second Quarter 2011 National Housing Survey, at least 26 percent of mortgage borrowers said they were underwater on their mortgages — or had negative equity in their homes — and were at risk of default.
Offering greater access to refinancing, especially at such low interest rates, would be one way for bankers and the government, which guarantees the vast majority of all mortgage loans, to protect the economy and local communities from increased foreclosures and falling home prices, said James Brock, a Miami University economics professor.
“If we could find a way to do that, then everybody would come out ahead. People could stay in their homes and keep them from being dumped into the foreclosure market. And the banks would benefit because they would be getting something instead of nothing from a foreclosed home,’’ Brock said.
What do you think about James Brock’s point view on this subject?
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