Low Mortgage Rates Fail to Boost Refinancing Loans
Applications for mortgage refinancing have fallen for a second consecutive week to their lowest level since the beginning of August, as mortgage rates at or near record lows have seemingly failed to boost demand. The low interest rates, along with historically low home prices, have been the bright spots in the US housing market as it struggles to find stability in the wake of the expiration of federal homebuyer tax credits.
On Wednesday, the Mortgage Bankers Association(MBA) said its seasonally adjusted index of mortgage applications for the week ending September 10th fell 8.9 percent. The figure represents new applications for financing, whether for a refinance or a new mortgage. Their four week moving average for the week, which is calculated to smooth out seasonal volatility, was down just 0.8 percent.
The MBA's index of refi applications dropped 10.8 percent to its lowest level since the week ending August 6th. Refinancing allows many homeowners to avoid a potential foreclosure and puts cash in the pockets of consumers which they can then use to help stimulate the overall economy through consumer spending.
Many analysts are concerned about the staggering number of homeowners with negative equity in their homes, meaning they owe more on the loan than the home is worth. Also referred to as the homeowner being “underwater”, negative equity makes it difficult for homeowners to qualify for refinancing and in some cases prevents them from selling their homes.
Analysts say that there are thousands of underwater homeowners who would like to refinance but are unable because they've lost their jobs or simply cannot afford the closing costs. Lenders have also raised qualifications for borrowers in the wake of scores of bank failures during the recession, further complicating the dilemma for struggling homeowners.
Most economists forecast that homeprices will remain somewhere around current levels through at least 2012, as it will take some time for the job market to replace thousands of jobs lost during the worst recession to hit the American economy since the Great Depression.
Borrowing costs last week on a 30-year fixed-rate mortgage, not counting fees, averaged 4.47 percent, down from 4.50 percent the previous week and up from the record low of 4.43 percent set the week before. The survey has tracked closing cost averages since 1990.
Housing has been suffering from meager demand since federal tax credits for homebuyers expired on April 30th. In order to qualify for the credits, homeowners had to sign a purchase agreement before the end of April and originally had to close on the home by June 30th, though the close deadline was eventually moved back three months. The MBA's seasonally adjusted index of purchase agreements, used as an indicator of future sales, dropped by .4 percent for the week, the first drop in the index in four weeks.
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