In March of this year, one of the few bright spots in the economy was refinancing activity. Mortgage rates were at record lows and the Obama administration was developing programs designed to make it easier for people to refinance, reducing monthly mortgage payments and putting borrowers into a long term loan with a fixed rate. The stock market hit its low point on March 9^th, and one of the major catalysts that had it moving in a positive direction again was the increasing forecast for mortgage loan origination, particularly from borrowers refinancing.

In March, the Mortgage Bankers Association, a well known trade group in the mortgage world, increased its forecast for mortgage loans in 2009 by $900 billion dollars. The Obama administration had just released its “Home Affordable Refinance Program” and predicted that it could help between 1.5 million and 2 million borrowers. In the nearly three months since then, only 13,000 loans have been refinanced. The Mortgage Bankers Association reduced its forecast for 2009 Mortgage figures this week by $750 billion as a result of the decline in refinancing activity.

There are a few reasons that refinancing has slowed so dramatically. First, interest rates on 30 year fixed-rate mortgages have increased by almost a full percentage point in less than three months. The Federal Reserve had announced that they would purchase massive blocks of Treasury bonds and Mortgage Backed Securities to keep rates as low as possible, but apparently they haven’t been buying nearly enough. Also, many of the programs proposed by the Obama administration have taken longer to implement than industry experts had predicted.

Although interest rates have increased, they have been calmer over the past couple of weeks and many experts think they could fall again. Even at current rates, we are still near historic lows and borrowers with adjustable-rate mortgages or fixed mortgages with a rate over 6% should be at least considering the option of a refinance.

The group’s forecast for new mortgage origination was also cut by 10% this week, not because of fewer homes being sold, but because homes prices are still dropping. The lower home prices mean that borrowers need smaller mortgage loans to cover their purchases.

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Tags: mortgage, Mortgage Bankers Association, Refinance

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