Home Loan Wholesale

The number of home loan applications in the U.S. for home purchases fell to a 13 1/2-year low last week, the Mortgage Bankers Association reported Wednesday, in a further sign of the slump in home buying since a federal tax credit concluded at the end of April.  There have been fears for months that the incentive was stealing future sales and would result in a new leg down for the housing market once the support ended. New-home sales sunk to a record in May while pending total sales tumbled 30% from April.

Home loan applications for new homes were down 43% from the Independence Day week last year, said the MBA. The bad news comes even as home mortgage rates sink to new record lows.  Those rate declines have been giving some lift to applications for home refinancing, which hit a 14-month high two weeks ago. But even the MBA refinance mortgage report fell 2.9% last week from a week earlier as its gauge for purchases dropped 3.1%. The share of applications for refinancing was flat at 78.7%.  Read the original Mortgage News

Mortgage refinance rates have dropped almost two percentage points below their housing boom peak and they remain available at record lows.  Freddie Mac reported that mortgage rate average fell to the lowest point in 2010 4.72% plus 0.7 point for a fixed rate home loan on a thirty-year term.  Clearly this is a great time for a home refinance loan, if you can get approved.  Credit, Lack of Equity and Inability to Document Income are the 3 most common reasons that homeowners have not been able to refinance into these record low rates.  A few years ago if you had good credit, you could pretty much qualify for any mortgage, but things have changed dramatically.  Today even people who have 700+ credit scores are finding it difficult to qualify for a conventional or FHA mortgage and it is frustrating millions of borrowers who need to refinance.  To receive the best mortgage refinance rates, you need good credit scores and the ability to document your income.  Stated and no income verification loans are no longer viable options for home refinance opportunities.   You also need enough home equity to meet the refinance guidelines.  Many California borrowers had sufficient equity a few years ago, but the housing crisis has taken its toll on property values statewide.

The Mortgage Bankers Association released a report recently that outlined borrower problems in its latest report on home refinancing activity, which declined 14% last week after consecutive weeks of increased refinance loan volumes.  The low interest rates and homebuyer tax credit have clearly made a positive impact on the mortgage refinance market in 2010.  However, “despite the record low mortgage rates, many homeowners remain underwater on their home loans.  This means that their mortgage is greater than their property value.  According to MBA’s vice president, Michael Fratantoni, many distressed borrowers have been late on their mortgage payment which significantly damaged their credit and taking them out of contention for mortgage refinancing this year.

Since the pool of qualified borrowers looking to refinance is shrinking many lenders are offering aggressive mortgage specials.  Many reputable mortgage lenders are offering a no point refinance and some are going further with the no cost mortgage that enables borrowers to refinance without coming out of pocket for any lending expenses.  The no cost home loans also help borrowers avoid raising their mortgage balance in an effort to finance the lender fees and closing costs.  According to mortgage marketing executive, Bryan Dornan, “Again qualifying for no cost refinancing is difficult because you need good credit, sufficient income that can be documented and enough equity in your home to qualify for the loan refinance program.”  Dornan continued, “It’s not a motivation factor.  The borrowers who need home refinancing most simply do not qualify under today’s tighter lending guidelines.”

To put it into perspective, interest rates dropped last week, yet refinancing volumes fell.  In most cases, mortgage refinance rates follow the yields of longer-term Treasuries whether they rise or fall.  In recent months it’s been down, as the European debt crisis has led to banks dropping interest rates even further.  The vice president of HSH Associates Keith Gumbinger, “We have not seen mortgage rates lower than this in upwards of 50 years.” Gumbinger believes that the rates will begin trending higher once we get some good news regarding the economy.

Last week, the average mortgage rates were published at 4.875% and this was the best mortgage rates we have seen 22 weeks. Just a year-ago the average for the thirty-year mortgage was at 5.29%.   Home refinancing applications continued to explode as homeowners rushed to lending companies in an effort to lock the lowest possible refinance rates.  Freddie Mac chief economist Frank Nothaft said “The economy grew at a slower rate than originally reported in the first three months of the year and this suggests inflation will remain stable in the near term.”  “As a result,” Nothaft said, “mortgage interest rates remained at record levels this week.”

Mortgage rates fell to 2010 lows  but did come under a small amount of upward pressure late in the day as the stock market rallied into the close.   As the prices of mortgage backed securities fell, many mortgage lenders saw pricing get worse, but the higher lending costs that were passed on to borrowers were not big.  Mortgage refinance rates continued to hold at the best levels of 2010. 

Reports from competitive mortgage professionals indicate mortgage lender rate sheets to be about the same as yesterday.  The 30 year conventional rate mortgage remains in the 4.75% to 5.00% range for well qualified consumers.  There are still FHA lenders offering 4.625% as par.  To secure a par interest rate on a conventional mortgage you must have a FICO credit score of 740 or higher, a loan to value at 80% or less and pay all closing costs including an estimated one point home mortgage. 

If you are not planning on keeping your house for more than 5 years, you should consider a no cost mortgage.  In many cases, in a no cost refinance, you will be forced to accept a higher mortgage rate which pays the lender enough money that they can afford to pay the closing costs for you.  On a no cost mortgage, you are still paying the costs, just paying them in the form of higher interest charges.   We recommend anticipating that a no cost loan to offer a rate of around 5.375% for a 30 year fixed.

A thirty-year California mortgage loan with a fixed interest rate, including lending fees, averaged 4.96%, the lowest level since week ended March 12th. California rates were still higher the 4.76% last year and the all-time low of 4.6%.  The demand for refinancing in California rose but the home loan applications declined statewide as the federal home buyer tax credits expired.  The 100% VA loan remained the best bet for homeowners looking to buy a home with no money down.  However VA eligibility is required for the California VA loan.

On average, homes sold last month in the Southern California area were on the market for 122 days before their sales closed. That’s four days longer than in March.  Also this week, the National Association of Realtors reported.    Freddie Mac reported last week yesterday that California mortgage rates had fallen to their lowest rates of the year.  Thousands of borrowers rushed online to shop California mortgage loans after hearing the interest rates were so low for mortgage refinancing.