I've been calling on some of our past clients to let them know that cuurently the rate are as low as 5.5% plus through economy stilumius motivation - many are no cost refinances. Rueters reports a major up tick in refincnaces since the very recent attempt to jump start a lagging economy.
Risky subprime borrowers may benefit, but probably less so since lenders burned by mortgage losses have tightened their purse strings in recent months and have instated tight lending rules.
Quicken Loans saw a 50 percent pickup in loan applications after the Fed rate cut, Walters said. At LendingTree.com, daily refinance inquiries soared 230 percent to their highest ever, a spokeswoman said.
Refinancings "are one of the few areas where the rate cut has an immediate effect on the economy," said Nicholas Bratsafolis, chief executive officer of Refinance.com, an online lender that saw its applications double this week.
Applications for refinancings before the rate cut had already risen by 92 percent since early November, the Mortgage Bankers Association said on Wednesday. The increase was due to lower rates and the multiple applications made by borrowers expecting to be turned down by one or more lenders.
A loan is conforming if it's eligible for purchase by government-sponsored enterprises Fannie Mae and Freddie Mac, which still garner investor support because they guarantee principal and interest payments on mortgage-backed securities they issue. Among requirements, loans must be $417,000 or less and carry mortgage insurance if the borrower has less than 20 percent equity in the home.
Creditworthy borrowers with adjustable-rate mortgages may be the biggest winners, with the fresh opportunity to escape the $165 billion in prime loans whose payments are slated to rise this year. Those borrowers have been among the most active on LendingTree.com, said C.D. Davies, chief executive officer of the online lender.
For all the hoopla, refinancings will fall short of the record wave of 2003 when 30-year rates hovered around current levels, or as low as 4.99 percent, analysts said.
The mortgage market, totaling more than $10 trillion, is still loaded with loans that will not qualify for refinancing or whose rates do not justify getting a new loan.
Jumbo rates remain stubbornly high at about 0.8 percentage point above conforming loan rates -- compared with about 0.15 point during boom years -- since jittery investors have cut off an important source of funding for lenders.
Fannie Mae (FNM.N: Quote, Profile, Research) and Freddie Mac (FRE.N: Quote, Profile, Research) themselves have raised costs passed on to borrowers as they reassess their risk-taking. Falling home prices across the nation have eroded home equity, reducing the temptation to apply for "cash-out" refinancings.
Many subprime borrowers with adjustable rate loans will not qualify for any loan unless they have improved their credit. One hope for those homeowners are loans backed by the Federal Housing Administration (FHA) that require just 3 percent equity, Bratsafolis said.
Perversely, the impetus for lower rates may even result in a worsening of the housing crisis, analysts said. A recession would cause businesses to tighten up on credit for those who need it most, including subprime borrowers with $370 billion in mortgages slated for rate resets this year, the analysts said.
"This time around it's more skewed to people with decent credit and some down payment and equity in homes," said Quicken's Walters. "People with poor credit will probably not be able to take advantage."
