The government's efforts to revive the housing market by engineering lower mortgage rates are producing some concrete results: more refinancing applications. The Mortgage Bankers Association said yesterday that its refinancing index jumped 26 percent from the previous week and now sits at its highest level since the summer of 2003.
Why so much interest? "The average contract interest rate for 30-year fixed-rate mortgages decreased to 4.89 percent from 5.07 percent," the trade group said in the release. "The contract rate for 30-year fixed-rate mortgages is the lowest recorded in the survey. The previous low was 4.99 percent for the week ending June 13, 2003."
Now for the bad news: a good chunk of those applicants will be turned down, as banks boost lending standards and falling home values pull more and more homeowners under water.
From the Wall Street Journal:
Only about a third of outstanding U.S. mortgage debt is likely to qualify for refinancing, says Doug Duncan, chief economist of Fannie Mae. Nearly 70 percent of borrowers don't make the cut, he said, most often because their credit isn't good enough or they don't have sufficient home equity. A significant number of homeowners owe more than the current value of their homes, a situation sometimes known as being "under water." Others can't profitably refinance, often because they hold jumbo mortgages, which are those above the $625,000 limit for loans that can be bought or guaranteed by Fannie Mae or Freddie Mac in the highest-cost areas.
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