Fed Aid Sets Off a Rush to Refinance

[Eli Weiss]

Has anybody experienced an increase in volume....?

The Federal Reserve's attempt to stabilize the housing market set off a chain reaction across the U.S. on Tuesday, dropping interest rates and quickly spurring a burst of refinancing activity by borrowers eager to lower their mortgage costs.
Some brokers said it was the most activity they've seen in at least one year, although there was no way to determine to volume of refinancing.
At Bank of America Corp., call volume was roughly twice what was expected at call centers and via the Internet, said Matt Vernon, national sales executive. "It's the folks who have been sitting on the sideline. They're jumping in with this news."

Rates on 30-year fixed-rate mortgages dropped by roughly half a percentage point to about 5.5%, for borrowers with good credit scores and substantial equity in their homes, say mortgage brokers and lenders.

While the initial flurry of calls came from people seeking to refinance, economists predicted lower rates also will spur some home buying among bargain-seekers. The surge in refinancing will help the overall economy by putting more cash in consumers' pockets and reducing the pressure on some borrowers struggling to make payments.
"This is a win-win," said Susan Wachter, a professor of real estate at the University of Pennsylvania's Wharton School. "It will directly increase demand for housing and help with the downward spiral in home prices."

Tuesday's lower rates will for now only benefit borrowers who have the cash and credit rating to qualify for mortgages under current lending standards. The Fed's actions won't make mortgages any easier to get for homeowners or buyers who haven't been able to qualify in recent weeks.
Lower rates also won't help the roughly 11.8 million borrowers who are unable to refinance because they owe more than their home is worth, said Mark Zandi, chief economist of Moody's Economy.com

But he said about half-dozen other interested customers couldn't refinance because they had relatively low credit scores and too little equity in their homes. To get a rate of 5.5% Tuesday, he said, a customer would need a credit score of at least 720, about average, and home equity of 20%.

http://online.wsj.com/article/SB122765938507058417.html

 

[Kevin Mc]

The Federal Reserve's attempt to stabilize the housing market set off a chain reaction across the U.S. on Tuesday, dropping interest rates and quickly spurring a burst of refinancing activity by borrowers eager to lower their mortgage costs.
Some brokers said it was the most activity they've seen in at least one year, although there was no way to determine to volume of refinancing.

 

[PropertyEconomics]

The money isnt even in the bank yet and the desparate are out to get some ... amazing. :new_2gunsfiring_v1:
Im sure it will result in some refinancing, however, tighter credit requirements will disqualify quite a number as I noted it did say Good Credit Ratings adn Substantial Equity in their Homes ... yeah right ... near the bottom of a declining market .. ummm hummm lots of people have equity in their homes now ... Hang on the pressure is about to get intense ... again.

 

[Lloyd Bonafide]

Mortgage rates dropped something like 1/2 of a point today, so there should be some more refinancing.

The only problem is that loans are much harder to qualify for now, plus a lot of homeowners have no equity left.

 

[Workbox]

Yes, credit rating is going down the tubes and banks want perfection. The more folks miss or skip payments, all the fake money will not help one bit, because Mother Teresa can not Get Pregnant if no one is willing to take one for the team.

This shear smell of desperation.

 

[Elliott]

Let's see, world in a panic, Gubermint takes away all my crappy
toxic debt, now I have a beautiful balance sheet with lots of
assets and cash!! All the businesses around me are crashing,
employment is declining, real estate values are crashing....me, as
a bank lend money, ARE YOU CRAZY?? I will continue to hoard,
its the only logical thing to do.

Plan 2?

 

[Terrel L. Shields]

I think the big banks, insurance companies, etc. are milking this for all the cash its worth. Where is the so-called moral hazard? There is none. Eventually this largess has to lead to inflation. It is inflation that will reduce the value of a home, not lowering prices. The government is doing everything in its power to keep house prices from falling back to where they actually need to go. It is like oil prices. Even though the price rose quickly from $70 to $145, they are worrying about "deflation" caused by lowering gas and oil prices. Nonsense. Let prices settle at the price they belong and hold the money value steady. Instead we are on a path to make money worthless relative to gold or better valued securities and we all end up with lots of money but it won't buy nothin'. The only reason we don't have 15% interest rates now is due to globalization. We even globalized the credit crunch. Iceland is having riots after its largest 3 banks cratered. Britian has literally nationalized their banks. Asian banks are not even immune.

 

[Couch Potato]

Britian has literally nationalized their banks. Asian banks are not even immune.

On the other hand the US has just nationalized the losses of our banks. The profits are still privatized. :new_all_coholic:

 

[Karl]

Here in AZ the decline is said to be 32% from November 2007 to today. Now add that to the Decline from 2006 to Nov 2007 How many folks do you think are going to be able to ACTUALLY Refi??.

Now add in the need for reasonable Credit Score & my favorite!!! PROOF of income. NOW!! How many you think will qualify for a Refi??

 

[Elliott]

Karl,
Bob Brinker's (radio investment guy) favorite AZ story is a student who
had an unemployed husband who qualified for a loan because she had
enough money to make one years payments. But after a year, she
was still a student and her hubby was still unemployed, so the bank
ate a $50K loss on a short sale (and the $50K is considered income
to her....student, meet the IRS).

In all the banking mess stories, my favorite was a commercial lender
back east who has always lent on just one thing, "Cash Flow". They
are doing just fine and picking up business from some of the 'financial'
competitors who have gone out of business.