Posturing for Progress

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The Latest or ig i nat ion ORIGINATION Mortgage Applications Point to Sustainability se r v ic i ng Small gains in mortgage applications signal long-term recovery. S e c on da r y M a r k e t a na ly t ic s A Commitment Issues Survey shows that more refinancers are looking to shorten the terms of their loans. F reddie Mac released the results of its first-quarter 2013 refinance analysis, showing more refinancers are interested in shortening their loans. Of borrowers who refinanced during Q1, 28 percent shortened their loan term, Freddie Mac reported—up from 27 percent in Q 4 2012. The majority (68 percent) elected to keep the same term as the loan they had paid off, while 3 percent chose to lengthen their term. Likewise, 85 percent of those who refinanced their first-lien mortgage maintained about the same loan amount or lowered their principal balance by paying in additional money at the closing table, a few points down from the 88 percent peak in Q2 2012. 34 | The M Report The analysis also found that refinancing borrowers "overwhelmingly" opted for the safety of fixed-rate loans, with more than 95 percent taking that route. Of those who previously had a hybrid adjustable-rate mortgage (ARM), 87 percent chose a fixed-rate loan during the first quarter, the highest share since Q1 2010. Borrowers who refinanced in Q1 will save on net approximately $7 billion in interest over the next year, according to Freddie Mac. Additionally, the GSE estimated $8.1 billion in net home equity was cashed out during the refinance of conventional pricecredit home mortgages, "about the same as the previous quarter and substantially less than during the peak cash-out refinance volume of $84 billion during the second quarter of 2006." For loans refinanced through the Home Affordable Refinance Program (HARP), the median depreciation in property was 28 percent, the prior loan had a median age of about six years, and the borrower with a 30-year fixed-rate refinance (no product change) had an average interest rate deduction of 2.1 percentage points. For all non-HARP refinances during the first quarter, the median property "had very little change in value between the dates of placement of the old loan and the new refinance loan." The prior loan had a median age of 4.1 years, and borrowers who refinanced a 30-year fixed-rate into the same product had an average interest rate reduction of 1.6 percentage points. fter examining mortgage application data throughout April, Capital Economics sees "mounting evidence that mortgage-dependent buyers are starting to play a fuller role in the housing market recovery." Compiling information provided by the Mortgage Bankers Association (MBA), Capital Economics found that total application volume was up 3.5 percent from March to April. Demand for home purchase loans provided a significant boost. According to Capital Economics, purchase applications rose 4.6 percent, building on a 4.5 percent gain in March. Purchase applications have risen for seven of the last eight months, and while volume remains far below pre-crash levels, the firm notes that applications have risen 11.5 percent over the past year and now stand at a three-year high. 3.5% Total application volume was up 3.5 percent from March to April. Source: Capital Economics.

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