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Mid-year Housing Report: Refinances down… modification interest rates up

August 11, 2014
From Loan Officer Daphne Tapp

From Loan Officer Daphne Tapp

At the beginning of 2014, experts made predictions on what the state of the housing market would be in the coming year. We visit those predictions to see how they stack up against what’s really occurred and what may yet happen this year in real estate.

Refinances? Not really. As predicted at the beginning of the year, refinance activity is almost nonexistent in 2014 despite low interest rates. What’s to blame? A still-recovering economy and job uncertainty are factors. In addition, according to Zillow’s May negative equity report, 9.7 million homeowners are still underwater on their mortgages, which may also be limiting refinances. However, the Housing Finance Agency estimates that 750,000 borrowers may qualify for the Home Affordable Refinance Program (HARP), which remains available until the end of 2015. It allows those with negative equity to refinance if they meet certain requirements, including having their loan guaranteed by Fannie Mae or Freddie Mac.

For those who are refinancing, their profile looks much different than those from the early 2000s. Then, homeowners “cashed out” to pay for home improvements or other purchases. Just 26% used the cash to reduce debt. Today, that has flipped… Fannie Mae reports 22% of those who refinance actually put additional cash towards the refinance so they can lower the principal balance.

Dodd-Frank Act Begins to Ramp Up. In July 2010, Dodd-Frank was signed into law and lenders were apprehensive about how the new rules would impact business and customers.  Four years after its passage, just half of its 398 rules are in in effect. On January 10th of this year, the Qualified Mortgage (QM) Rule went live, which limits the types of mortgages and related terms that can be offered and specifies underwriting standards and documentation required in the underwriting process. So far, banks have been able to adjust to the changes even as they have to invest more heavily in compliance and paperwork hours to meet all of the requirements, but there is still quite a bit of the law’s rules and regulations to come.

Modifying loan modifications?  During the housing meltdown, borrowers who qualified rushed to modify their mortgages. Many received low interest rates of 2% or 3%, locked for a five-year period. Later this year, those with HAMP modifications will begin to see those rates adjust. Modifications will gradually increase by 1% annually, but will be capped at whatever the 30-year fixed rate national average was at the time of the modification. For most, the average increase will be about $200, but could be as high at $1700+. As these rates begin to adjust, don’t be surprised to hear talk about modifying the modifications.

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