Mortgage rates fall

Average fixed mortgage rates slipped this week, in response to a decline in 10-year Treasury yields and an underwhelming March jobs report.

The average interest rate on a 30-year, fixed-rate mortgage was 4,34 percent this week, compared with 4.41 percent last week, Freddie Mac said in its weekly survey. A year ago, the average rate was 3.43 percent.

On a 15-year, fixed-rate mortgage, the average rate was 3.38 percent. That compared with 3.47 percent last week and 2.65 percent in the same week a year ago.

New Mortgage Lending at 14-Year Low

Mortgage originations in February fell to their lowest level in at least 14 years due to the months-long plunge in refinancing activity and weak demand for loans to purchase new homes.

The mortgage data, from a report released earlier this week by Black Knight Financial Services, gives some heft to bearish predictions of several industry executives who have said that the US mortgage market faces its greatest shift in more than a decade after an era of falling interest rates that began in 2000 ended abruptly last year.

The Mortgage Bankers Association, meanwhile, reported on Wednesday that the share of mortgage applications for refinances hit their lowest level since July 2009 last week. Refinances have been a major source of revenue for banks with every successive round of Federal Reserve stimulus over the past six years.

A drop in refinancing isn’t a major threat to the housing market, and weak loan demand for home purchases hasn’t yet hurt the market because demand remains strong from investors paying cash.

For lenders, the drop in refinancing could pose a major threat. While everyone knew the refi gravy train couldn’t last forever–at some point, loan officers will burn through the universe of borrowers who can be encouraged to reduce their rate by refinancing–the refinance boom of 2012 and 2013 ended more abruptly than many anticipated.

Mortgage rates jumped last May as the Federal Reserve hinted at a possible slowdown in its bond-buying program. The average 30-year fixed-rate mortgage jumped from 3.6% in early May 2013 to 4.6% by late June.

As the charts here indicate, refinancing is very sensitive to the direction of interest rates. Refinances rise when rates fall, and they fall when rates rise or stay flat. Mortgage rates have hovered around the 4.6% range since last summer.

Last week, the share of refinance applications fell to 51% of all loan applications, down from 84% in late 2012, when mortgage rates fell to 3.5%. And keep in mind: at 4.6%, mortgage rates are still historically low. Refinancing could fall much lower if rates climb back above 5%.

Consider what happened in 1994: rates rose from 6.7% in October 1993 to 8.7% in June 1994, and refinancing fell from 63% of loan activity to 11%. Of course, the mortgage market was much smaller then, too, meaning there were fewer jobs to slash as demand evaporated.

Lenders not only face a more competitive environment with lending demand dropping, but they must also focus more heavily on loans to buy homes, which are more time intensive than loans to refinance. The purchase-loan business tends to rely more heavily on cultivating strong relationships with real-estate agents and home-builders, who are critical in delivering customers.Some analysts have predicted that a rebound in home purchase lending will help, even though no one expects it to fully replace the lost refinancing volumes. Still, the year is off to a foreboding start on that front. Paul Miller, a banking analyst at FBR Capital Markets, cut his forecast for mortgage originations to $1.1 trillion from $1.2 trillion on Monday amid the weak first quarter numbers.

Mr. Miller estimates banks originated just $226 billion in mortgages during the first quarter, which would represent a 60% decline from a year earlier. Almost all of that drop is due to less refinancing. Anything below $240 billion would be the worst quarter for the industry since 1997, according to the MBA.

The mortgage industry’s long winter has been many years in the making. The drop in volumes should have happened around a decade ago, said Doug Duncan, chief economist at Fannie Mae. In 2003, the average 30-year fixed-rate mortgage fell to 5%, down from a peak of 8% in 2000 and 18.5% in 1981.

But two developments allowed the mortgage industry to keep production humming even after rates began to rise. First came the growth of the subprime market from 2004 to 2006, in which lenders relaxed standards, convinced that rising home prices would bail out borrowers that got into trouble.

Then in late 2008, the Fed embarked on the first of its bond purchases, known as “quantitative easing,” which brought rates back to their 2003 lows–and later, below those levels to their lowest in nearly 60 years. Additional rounds of quantitative easing, combined with government programs to help homeowners refinance even if they didn’t have any equity, generated a succession of refinance waves.

Mortgage Rates Decline; Rises Loom in Future

[ Life]

As the spring season rolls in and the winter doldrums roll out, people are finally exiting their homes and exploring the world once again. Luckily for those recovering from an intense winter hibernation, the economy shows positive signs for the first quarter. Job growth increased by 192,000 for the month of March, and unemployment remained at 6.7 percent. More important for future home-buyers, though, was news that mortgage rates are slowly declining despite fears of an increase in 2014.

Recent reports show that average mortgage rates fell from 4.5 percent to 4.375 percent at the beginning of April, a much-needed positive sign for the housing market.

While most big banks are reporting a drastic decline in the number of mortgage originations for the first quarter, with Wells Fargo reporting a 67 percent decline in originations and JP Morgan reporting a 68 percent decline, most signs showcase that for the month of April, more homeowners are coming onto the market and expressing interest in purchasing a new home.

The Mortgage Bankers Association has reported a 13 percent increase in home-purchase mortgage applications over the past five weeks, hitting a two-month high.

Along with a recent increase in home-buying applications, US consumer confidence ratings hit its highest point in the past six years, indicating that consumers feel secure in the current economic climate and are more willing to make large purchases.

The surge in demand for houses and the rise in mortgage applications may simply be a brief blip on the radar, however.

Mortgage rates increased over the past year most likely in response to news that the Federal Reserve was going to draw-back on its bond-buying program, pulling $10 billion from the economy in monthly installments until the average monthly investment dropped from $85 billion to $55 billion.

Once this transition is complete, much economic pundits believe mortgage rates will increase. Because of this, many first-home-buyers may be rushing to the market now to circumvent potential higher mortgage rates in the future.

If the Fed is planning on pulling $30 billion out of the US economy each month soon, it should hope that banks keep mortgage rates low. Lower mortgage rates spur increased consumer spending, a sector which accounts for 70 percent of the US GDP.

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Sen. Warren Proposes Allowing Student-Loan Borrowers to Refinance Debt

By Mark Keierleber

US Sen. Elizabeth Warren announced on Saturday that she will introduce legislation that would allow existing student-loan borrowers to refinance their debt at interest rates offered to new borrowers in the federal student-loan program.

The announcement of the forthcoming legislation, which she said will be released in the coming weeks, came during Ms. Warrens keynote address at a research symposium on student loans sponsored by Suffolk Universitys Law School and the National Consumer Law Center.

A graduate student who took out an unsubsidized loan before July 1 of last year is locked into an interest rate of nearly 7 percent, said Ms. Warren, a Democrat of Massachusetts. Refinancing those old loans would lower the interest rate to 3.86 percent for undergraduate loans, and lower the others accordingly.

The rates are lower now because of legislation approved last summer that ties student-loan interest rates to the financial markets.

For a recent graduate who borrowed the maximum, Senator Warren said, payments would drop by as much as $1,000 a year. The total interest over the lifetime of the loan would be cut nearly in half.

This is a common-sense proposal that should not be controversial, Ms. Warren said. When interest rates are low, homeowners can refinance their mortgages, big corporations can swap more expensive debt for cheaper debt, even state and local governments have refinanced their debts. Students should be able to refinance their federal loans as well.

During her speech, Ms. Warren also said the government should reinstate bankruptcy protections for student-loan borrowers and punish colleges with high student-loan default rates.

Mortgage Rates Are Lower Today Than They May Ever Be Again

Ignore everything you think you know about the current state of mortgage rates. If youre waiting to buy a house until they return to their lows from two years ago, then you could be renting for the rest of your life.

In behavioral finance, this is known as anchoring. This concept draws on the tendency to attach or anchor our thoughts to a reference point — even though it may have no logical relevance to the decision at hand, explains Albert Phung, a writer and analyst for Investopedia.com.

The examples of this are legion. A study made famous by the book Predictably Irrational examined whether college students would pay more or less for a bottle of wine after being asked to write down the last two digits of their social security numbers. As you may have guessed, those with higher numbers indicated a willingness to pay more.

While this doesnt translate precisely into the mortgage-rate realm, it nevertheless demonstrates how a largely irrelevant number can influence our day-to-day decisions. And its this point that holds true when you look at the 3.4% rate on 30-year conforming mortgages that prevailed at the end of 2012.

Lending Plunges to 17-Year Low as Rates Curtail Borrowing

US mortgage lending is
contracting to levels not seen since 1997 — the year Tiger Woods won his first of four Masters championships — as rising
interest rates and home prices drive away borrowers.

Wells Fargo (WFC) amp; Co. and JPMorgan Chase amp; Co., the two largest
US mortgage lenders, reported a first-quarter plunge in loan
volumes that’s part of an industry-wide drop off. Lenders made
$226 billion of mortgages in the period, the smallest quarterly
amount since 1997 and less than one-third of the 2006 average,
according to the Mortgage Bankers Association in Washington.

Lending has been tumbling since mid-2013 when mortgage
rates jumped about a percentage point after the Federal Reserve
said it might taper stimulus spending. A surge in all-cash
purchases to more than 40 percent has kept housing prices
rising, squeezing more Americans out of the market. That will
help push lending down further this year, according to the
association.

“Banks large and small are going to have to adapt to a new
reality because mortgage origination volumes going forward
aren’t going to support the big businesses they’ve had in place
for the last few years,” said Stephen Stanley, chief economist
at Pierpont Securities LLC in Stamford, Connecticut. “They’re
going to have smaller, leaner operations, and we’re seeing them
make that shift.”

At Wells Fargo, home-loan originations exceeded $100
billion for seven straight quarters, ending in June 2013. The
figure plunged to $36 billion in the three months through March,
the San Francisco-based bank said April 11.

Rising Rates

Wells Fargo’s results show the shift in the housing market
away from refinancings as interest rates climb. Just 34 percent
of its originations went to customers refinancing loans,
compared with 69 percent in the same period of 2013.

Timothy Sloan, Wells Fargo’s chief financial officer, said
a combination of forces, including tougher standards following
the housing crash, account for the falloff in lending.

“It’s too early to call it a secular shift,” Sloan said
in an interview. “This recovery has just been more complicated
because of the impact of rates being low, and now they are
backing up a little bit. We’ve had a lot of regulatory changes,
we’ve had a change in underwriting standards that the market is
getting used to.”

The average interest rate for a 30-year fixed mortgage was
4.34 percent last week, up from 3.54 percent a year ago,
according to a statement from Freddie Mac.

Cutting Staff

Lenders also are tightening credit standards, requiring
higher FICO scores. More than 40 percent of borrowers in 2013
had scores above 760, compared with about 25 percent in 2001,
according to a Feb. 20 report by Goldman Sachs Group Inc.
analysts Hui Shan and Eli Hackel.

JPMorgan originated $17 billion of home loans in the first
quarter of 2014, lower than at any time during the housing
crash. The New York-based bank made $52.7 billion of mortgages a
year earlier. Marianne Lake, JPMorgan’s CFO, cited severe winter
weather as among the reasons for the first-quarter drop.

“We view JPM and WFC’s mortgage banking results as lower
than expected,” Keefe, Bruyette amp; Woods analysts led by
Frederick Cannon said Friday in a research note, referring to
the bank’s stock symbols. “Mortgage volumes and applications
were down materially.”

The lenders are cutting staff in the slump. JPMorgan said
it reduced the number of jobs at its mortgage unit by 30
percent, or 14,000 positions, since the start of last year. That
includes 3,000 reductions in the first quarter. Wells Fargo said
it got rid of 1,100 jobs in its residential mortgage business in
the first period.

Cash Deals

JPMorgan projected on April 11 that it will lose money on
mortgage production this year because of the drop in demand.

All-cash purchases, dominated by investors, are surging as
lending drops. Deals in cash accounted for more than 43 percent
of US residential sales in February, up from 20 percent a year
earlier, with the most in Florida, New York and Nevada,
according to data firm RealtyTrac.

Wells Fargo said last week that it’s seeing more cash
buyers in the housing market.

“Some of those cash buyers were investors, both
individuals and private equity firms and the like, and that had
an impact on home prices,” Wells Fargo’s Sloan said. “If you
look at the year-over-year increase in home prices being in the
low teens, our folks think probably a third of that increase was
due to the impact of investors as buyers.”

Institutional Landlords

Private-equity firms, hedge funds, real estate investment
trusts and other institutional landlords have spent more than
$20 billion to buy as many as 200,000 rental homes in the last
two years. They snapped up properties after prices fell as much
as 35 percent from the 2006 peak and rental demand rose from the
almost 5 million owners who went through foreclosure since 2008.

Investors focused on the markets hardest hit by the real
estate crash, including Phoenix, Las Vegas and Atlanta, and have
helped push prices higher in those areas.

“This is an investor-heavy market recovery,” said Daren Blomquist, vice president of RealtyTrac in Irvine, California.
“We’ve seen a relatively high percentage of institutional
investors as one segment, and regular mom-and-pop investors as
another, jumping back in as they see the market hit bottom and
start to rise.”

Home prices have surged 23 percent since a post-bubble low
in March 2012, according to the Samp;P/Case-Shiller index. The
gains have slowed as climbing values in the past two years
started to reduce affordability.

Small Market

Prices for single-family homes rose in fewer areas in the
fourth quarter, with 73 percent of US cities experiencing
gains compared with 88 percent in the previous three months,
according to the National Association of Realtors.

Higher values will make it harder for banks to find
qualified borrowers this year.

“We’re going to have a small market,” JPMorgan’s Lake
said on an April 11 conference call. ” We’d be hopeful that the
market would be above $1 trillion for the whole year.”

To contact the reporters on this story:
Kathleen M. Howley in Boston at
kmhowley@bloomberg.net;
Zachary Tracer in New York at
ztracer1@bloomberg.net;
Heather Perlberg in New York at
hperlberg@bloomberg.net

To contact the editors responsible for this story:
Vincent Bielski at
vbielski@bloomberg.net
Rob Urban

Updated For 2014: A Review Of Today’s Streamline Refinance Mortgage Loans …

With US mortgage rates still near historical lows, millions of US homeowners remain eligible to refinance with the typical refinancing household lowering its mortgage rate 1.8 percentage points.

For homeowners using the HARP program, as one example, lowering your mortgage rate by that amount can yield monthly savings 25% or more on your mortgage payment. Savings are similarly large for other refinance programs.

The best news, though, is that there are a number of reduced-documentation loans available to todays refinancing households. Known as streamline mortgages, these loans provide all of the savings with almost none of the paperwork.

Click to get todays mortgage rates.

What Is A Refinance?

A refinance is the renegotiation of your mortgage terms with yours, or any other, bank; a replacement of your old loan with a new one.

Refinances come in several varieties.

There is the standard rate-and-term refinance whereby a homeowner refinances to lower her mortgage rate, shorten her loan term (in years), or both.

Homeowners can add tax and insurance escrows, closing costs, and up to one months mortgage interest to their existing balance, but may not increase their loan size otherwise via this type of refinance.

A second refinance type is the cash-out refinance, which is exactly what it sounds like. Via a refinance, a homeowner can access her home equity which is paid as cash at closing.

Homeowners use cash-out refinances for many reasons including financing home repairs; paying for college or graduate school; and, diversifying a broader portfolio.

The third type of refinance is the cash-in refinance, via which a homeowner pays down her loan balance at closing, generally in conjunction with a reduction in mortgage rate or a shortening of the loan term, in years.

Refinances remain readily available but paperwork requirements are greater as compared to loans from last decade. New federal law requires that lenders make additional verifications, and that borrowers sign extra disclosures and waivers.

Refinancing can produce a lot of paperwork. Thankfully, federal law also allows for a special type of refinance known as a streamline refinance which reduces the need for such documentation.

Streamline refinancing can be downright fast.

Click here for todays live mortgage rates.

What is a Streamline Refinance?

Streamline refinances are special types of refinance which waive many of the typical verifications required with a traditional mortgage refinance.

For example, a streamline refinance will often waive income verification and asset verification for all borrowers involved, and will sometimes waive the need for credit score reporting.

Streamline refinances will also often waive the traditional home refinances appraisal requirement which means that homes do not have to be appraised in order to be approved for loan.

Waived appraisals can be especially useful to homeowners with a unique properties, or whom are underwater with their mortgage. With no appraisal required, lenders ignore home valuations and home inspections.

A few reasons why homeowner choose to streamline refinance include :

  • Lower your mortgage interest rate
  • Lower your monthly payment
  • Convert an adjustable rate to a fixed rate
  • Refinance more quickly and more easily than with a standard refinance
  • Save significant money over the life of the loan.

Streamline refinances are available via all of the government-backed mortgage agencies, too.

The FHA offers the FHA Streamline Refinance, a program which exists to refinance existing FHA mortgages.

The FHA Streamline Refinance, per program guidelines, waives all verifications including income, assets, credit, and home appraisal. Note that not all lender follow these guidelines to the letter, however. Seek multiple quotes if youre in search of a true FHA Streamline Refinance.

Via the Department of Veterans Affairs, military borrowers can use the Interest Rate Reduction Refinance Loan (IRRRL) — more colloquially called the VA Streamline Refinance. The VA Streamline Refinance waives verifications in the same way that its FHA cousin does.

Theres also a streamline refinance available for USDA mortgages backed by the US Department of Agriculture. Currently in a pilot phase, the USDA Streamline Refinance is available in some states, but not all. It, too, offers fewer verifications and a waiver of appraisal.

And, lastly, there is the Home Affordable Refinance Program (HARP). Although not a true streamline refinance, the HARP mortgage for underwater homeowners waives appraisals in most cases, and may require less paperwork as compared to other refis.

Get Todays Live Mortgage Rates

With mortgage rates low, its a good time to consider a refinance. Millions of US homeowners are eligible for low rate and, for homeowners using a streamline refinance, the savings can be as big as the paperwork reduction.

Compare todays mortgage rates and verify your eligibility for one of the many streamline refinances available to US homeowners. Rates are available online at no cost, with no obligation to proceed, and with no social security number required to get started.

Click for todays live mortgage rates.

7 good reasons for a mortgage refinance

Low rates are not the only motive for refinancing a home loan nowadays. The following are good reasons to consider a new home loan.

REFI FOR A LOWER RATE: The No. 1 reason to refi is to get a lower mortgage rate. Despite sinking rates, a lot of people havent refinanced.

The average interest rate on an outstanding mortgage at the beginning of 2012 was 5.098 percent, but lenders today are offering rates well below that benchmark, making a refinance a no-brainer for many.

CONVERT AN ARM.: Stability-hungry borrowers are ditching adjustable-rate mortgages and refinancing into fixed-rate loans.

Everybodys frightened about inflation, so if they have an adjustable loan, thats the No. 1 reason theyre getting out of them, said Jeff Lazerson, president of Mortgage Grader, a lender based in Laguna Niguel, Calif. Its not because you can get them at a better rate, but because you can get them at a stable rate.

GET A MORTGAGE ON A PAID-OFF HOUSE: This isnt technically a refi, but its close. Mortgage-free homeowners sometimes get mortgages to put cash in their pockets.

CASH OUT TO CONSOLIDATE DEBT: When house prices were rising by 10 percent or more a year, millions of borrowers got cash-out refinances. They refinanced for more than they owed, got cash, and spent or invested it.

The cash-out refi craze ended when the housing bust began. But there are still a few cash-out refis.

CASH OUT TO BUY OTHER PROPERTY: Lazerson said, One thing thats a trend now is that people are taking money out to purchase other properties,often investment properties.

CONSOLIDATE TWO MORTGAGES: Some homeowners want to combine their first mortgage with the home equity line of credit.

Im seeing a lot of people, even if their rate on their home equity line of credit is 3 percent, refinancing to get rid of them, said Michael Becker, mortgage banker at Happy Mortgage in Lutherville, Md.

CBN Unveils Framework for Mortgage Refinance Company

Sanusi Lamido Sanusi

. Pegs capital base at N5bn

Obinna Chima

As part of efforts to ensure the success of the recently inaugurated Mortgage Refinance Company (MRC), the Central Bank of Nigeria (CBN) Thursday introduced a regulatory and supervisory framework for the operation of the company.

The 38-page document posted on the central banks website yesterday stated that the MRC shall commence operations with, and maintain at all times, a minimum paid-up capital of N5 billion.

It also stated that a MRC should maintain, at all times, a minimum ratio of core capital to total assets (leverage ratio) of not less than five per cent.

In addition, the framework stipulated that the core or tier 1, capital of the company should consist of paid-up capital and reserves plus retained earnings, statutory reserves, other reserves and published current earnings, less goodwill and other intangible assets and identified losses, or as otherwise defined by the central bank for licenced financial institutions.

The establishment of an MRC is primarily aimed at increasing the liquidity within the mortgage sub-sector and availability of mortgage credit in Nigeria, reduce mortgage and related costs, and make residential housing more affordable.

The benefits of such mortgage liquidity facilities are globally acknowledged. As a financial institution, the MRC would be under the regulatory and supervisory purview of the CBN.

The document added: The MRC shall maintain at all times a minimum ratio of qualifying capital to the value of its risk-weighted assets of not less than 10 per cent. Asset risk weights to be used for this computation shall be those prescribed by the Bank for licensed banks.

Nonetheless, the central bank stated that the MRC would not be allowed to granting consumer or commercial loans; originate primary mortgage loans; accept demand, savings and time deposits, or any type of deposits; finance real estate construction; undertake estate agency or facilities management; provide project management services for real estate development and manage pension funds or schemes.

On the licensing requirement, the CBN explained that the procedures and criteria to be used in granting a licence to the MRC would be the same as specified for banks under the Banks and Other Financial Institutions Act, CAP B3, Laws of the Federation of Nigeria, 2004 (herein after referred to as BOFIA) and any other regulations issued by the Bank.

The ultimate responsibility for every MRCs operations shall be vested in its Board of Directors. The number of directors on the board of the MRC shall be a minimum of seven and a maximum of 15. The non-executive members must be at least twice the number of the executive directors at any point in time.

The Bank shall approve the appointment of each director who shall meet the qualifications for licenced bank directors as specified in the BOFIA, or as may be specified by the Bank from time to time, it added.

Continuing, it stated that executive directors of the MRC are expected to hold office for a fixed term of not more than five years and such term may be renewed only once, while non-executive directors would serve for a fixed term of not more than four years and such term may be renewed only twice.

It stated: For the avoidance of doubt, the maximum tenure of an executive director shall not exceed a total of 10 years while a non-executive director shall not serve for periods exceeding 12 years in total.

Any executive director who has served two 5-year terms may equally serve as Managing Director, if so appointed, for the maximum of two 5-year terms (a combined maximum of 20years).