Mar. 10, 2010 (FreeRateUpdate.com) – The majority of homeowners that qualify to refi under new guidelines, and who have equity, have done so by now.  Trickling in now are procrastinators, (gamblers) those giving up on rates going lower, and surely some shoppers who have spent the last 6-12 months comparing rates.

FACT:  Mortgage rates have been historically low, consistently for almost a year and a half but refi volume has been average to weak.

During the refi boom people refinanced without blinking at record numbers. During the past year, a new smarter post mortgage meltdown borrower has carefully and tediously positioned them-self for the long run, some with 30 year fixed notes under 5 %.

That brings us to the death of refinance. A reality that’s soon to hit, which looms in the back of many mortgage industry veterans’ minds like an unpayable tax lien.

Right now approximately 65 percent of mortgage applications are for refinance. Don’t be fooled by this statistic. Purchase volume is at an ALL TIME LOW. Even with sub 5 percent mortgage rates available to well-qualified consumers, mortgage refinance is slow.

When rates do rise to 6%, and they will, the drop off in refinance activity will be epic. Refinance volume will likely drop by 80%.  The classic rate and term (it makes sense),  lower the rate and in turn the payment, refi will be pretty much gone for years. Who in the world that qualifies for a refinance (guidelines and equity ain’t changin’ any time soon) will be at a rate high enough to be in need of a 6.25% 30 year fixed.  The answer is nobody. Only those rare borrowers who have equity left in their homes, and that qualify for a refi which means lots of LIQUID assets, and are willing to accept higher rates to take cash out  will consider refinancing. The same people that buy Kirby Vacuums at 3 grand a pop.

I talked to Scott Everett, the President of Supreme Lending, a large mortgage banker based in Dallas, TX about about this. Scott Everett is the only person I know that predicted the demise of option arms well before it happened. “When mortgage rates rise do you feel the refinance market will completely dry up?” I asked. ”There will always be some, but it will certainly die off” he told me. A simple but effective answer.

The death of refinance will effect mortgage professionals most. How bad it hurts them will depend on the level of purchase activity when refinance dies. If rates rise and purchase activity remains near record lows, the toughest of the tough, best of the best in the mortgage industry, who have ridden out the storm to this point will receive a knock out punch from the business that will surely end careers.

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Author Spotlight : Ed Ferrara

Edward James Ferrara III spent 8 years (2001-2008) brokering and banking home loans in Orange County, CA to the tune of some 500 million dollars in mortgages funded by May of 2008, when he founded the rate research website FreeRateUpdate.com. Ed recently married and became a first time father (Edward James Ferrara IV). Ed also contributes to the Realty Times. To contact Ed, email him or call him at (714) 694-5914.