November 2016 - End of the Road?

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14 | TH E M R EP O RT COVER STORY F lash in the pan. Fifteen minutes of fame. Moment in the spotlight. Whichever cliché is used to describe how fleeting fortune can be seems to fit the mortgage refinance boom that occurred over the summer. Recent numbers indicate that the refinance boom that started with tumbling rates after the Brexit vote in June might be ap - proaching the end of the road. In October, Freddie Mac predicted a 41 percent drop in refinance volume for the full year 2016, from $1 trillion down to approximately $600 billion. The refinance boom was born practically overnight, and it looks as if it might be coming to an end almost as quickly. The old adage states that "What goes up, must come down". . . does this hold true for the refinance market? Is this the end of the road for the refinance boom? It All Started With Brexit R ewind to June 24, when the United Kingdom voted by a narrow 52 to 48 margin to exit the European Union. At the time, analysts predicted that the historic Brexit vote would cre - ate more volatility in American financial markets—and they were right. Those same analysts also fore - casted that mortgage rates would plummet down to near-record lows following Brexit—and they were right about that, too. In the weeks immediately after the Brexit vote, homeowners refinanced their mortgage loans in droves to cash in on near- record low mortgage rates, which Freddie Mac said were driven by slowing economic growth in China and the Brexit vote. In the week following Brexit, Freddie Mac reported the average 30-year FRM at 3.41 percent, only 10 basis points higher than the all-time low set in late 2012. The average 15-year FRM dropped down to the 2.80s. "This," Freddie Mac stated, "is likely to result in a boost in hous - ing activity, particularly refinance, as homeowners take advantage of the current low rates." And did it ever. The MBA reported two weeks after Brexit that refinance applications had ris - en by 21 percent over the previous week to their highest level in a year and a half. "The most recent refinance boom was triggered by the surprise that the markets got when Brexit passed," said Brad Blackwell, EVP, Housing Policy and Homeownership Growth Strategies, Wells Fargo Home Mortgage. "That just shook up the whole global finance world and caused a lot of money to flow into U.S. treasuries, which drove down interest rates, and that lower interest rate level caused a lot of borrowers to decide to refinance all at once." Zillow found that refinance requests had increased by 132 per - cent from the previous week after Brexit. All types of loans were getting refinanced in numbers not seen in nearly a decade, from conventional loans to GSE-backed loans to FHA-insured loans. "Compared to everything else going on in the world, U.S. mortgage-backed securities now seem like a relatively safe bet for global investors, and this flight to safety has created savings oppor - tunities for U.S. homeowners and those who want to buy," said Erin Lantz, VP of Mortgages for Zillow Group. "The drop in rates follow- ing the vote sparked an influx of refinance activity, and may also be encouraging home shoppers to move quickly and lock in a rate." Refi numbers shot up im - mediately following Brexit, but senior mortgage an- alyst Holden Lewis believes that refinances have enjoyed increased popularity for much of the last seven years, since the FHFA launched its Home Affordable Refinance Program (HARP) in early 2009 to help underwater homeowners save money on their monthly mortgage payments. "You had (the HARP) wave of refinances, and then you had another wave, and that had to do with home prices," Lewis said. "The prices in some markets No Thru Street The refinance market boomed after June's Brexit vote, but lately has shown signs of coming to a halt. By Brian Honea

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