Mortgage Refinance: Is the Mortgage Refinance Business on Life Support?
By: Sheldon Levene
I remember 2007 like it was yesterday. Refinance, refinance, refinance. Everybody and their mom knew to refinance and they could. Lending guidelines were more lax than ever before. I remember talking to guys with credit scores in the mid 500′s, no assets, and not much equity in the property to begin who wanted to take out 50 grand at 100% financing and demanded a rate under 6% at the same time. If I couldn’t do it, that was my problem, they’d take their business elsewhere, and they could. Boy how times have changed. You’ve got to be a United States Senator nowadays to qualify for a refinance. Sure, mortgage rates are below 5% and it makes sense, but do you qualify? The people who do qualify have secured their long term 30 year fixed mortgage at or below 5% by now. If most can’t refinance and those who could did, where does that leave the refinance business in the next year or two or three.
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Mortgage refinance may be all but dead. The mortgage refi boom has been put on life support by the Fed who drove interest rates down to all time lows by purchasing mortgage backed securities. When mortgage rates go up where does that leave us? It’s a question worth asking as we approach the end of the Treasuries MBS purchase program. As mortgage rates rise the last of the pool of people who can benefit and qualify for a refinance will drop to near zero. Refinancing will be dead. Equity in homes is gaining, if at all at a snails pace. When homes aren’t gaining value, the equity just isn’t there to refinance out of a second mortgage, a mortgage with PMI, and adjustable rate you took to get into a home, whatever the case may be. There’s really not going to be that cash to take out to put in that swimming pool or redo the kitchen cabinets. Unfortunately, until homes start gaining in value the refinance business, especially when mortgage rates rise, will die off.