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COVER STORY refinancing means for the future of the industry. What the rising tide of By Mark Lieberman W drop in refinance activity as a share of all residential mortgages. They were both wrong. Very wrong. hen mortgage giants Fannie Mae and Freddie Mac issued their annual forecasts for mortgage activity for 2012, they anticipated a refinances represented 76 per- cent of all mortgage originations, compared with 66 percent for all of 2011—$290 billion in 2012, compared with $230 billion in the first quarter of 2011, accord- ing to Fannie Mae. Refinance applications, according to Freddie Mac, represented 81 percent of all applications in the first quarter, up from 75 percent in all 2011 and 69 percent in the first quarter of 2011. Before the onset of the Great Recession (December 2007), refinance applications in all of 2007 represented 49 percent of all applications. For the first five months of 2012, In the first quarter of 2012, 79 percent of all applications were for refinances, compared with 68 percent in the same period last year. By the end of May, the aver- market—and the persistent data on long-term unemployed who may no longer be counted in official unemployment rate computa- tions—has created a new breed of homeowners: those who in the past were easy candidates for refi- nances but who now can't qualify. The result, of course, has been new government programs. Mortgage refinances are part of does need stimulation. While payrolls showed strength at the beginning of the year—though still not enough to permanently cut into the unemployment rate—those gains petered out as the first quar- ter became the second. And even with payroll growth, earnings have stagnated. The slower growth in the labor And the economy, of course, age rate for a 15-year fixed-rate mortgage had fallen below 3 percent—2.97 percent—while the average rate for a 30-year fixed-rate loan was 3.75 percent, according to Freddie Mac's weekly survey. One year earlier, those rates were 3.78 percent and 4.6 percent, respec- tively. With new efforts by the Federal Reserve to push Treasury rates lower to stimulate the economy, mortgage rates are likely to fall further. the stimulus efforts, hence govern- ment programs such as the Home Affordable Refinance Program (HARP), which earlier this year was extended until December 31, 2013 (and dubbed HARP 2.0), allowing homeowners to refi- nance into low mortgage interest rates even if their property has decreased in value. Proceeds from cash-out refis or reduced monthly payments could, the Federal Reserve theorizes, help plug the holes in personal income THE M REPORT | 23