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With interest rates rising, lenders are pushing hybrid adjustable-rate mortgages again. Lenders say borrowers like the lower monthly payments and the loans no longer have the onerous interest-only or balloon features that contributed to the housing crisis.
August 19 -
Unlike their bigger competitors, smaller banks are resisting the temptation to pare staff or close mortgage production offices because they still see an opportunity to nibble away at large banks' market share.
August 2
The Federal Reserve's surprise decision to continue buying mortgage bonds could provide a boost to a U.S. housing market that has been slowed by a recent spike in interest rates.
But rates would again have to fall to 4% or below to spark another refinancing boom, experts say.
Bankers and mortgage lenders say the Fed's move, announced Wednesday, to keep its bond-buying strategy in place for now rather than taper its purchases, as was widely expected, will lower mortgage rates slightly, by roughly 12 to 25 basis points. That should benefit both homebuyers, who want to lock in lower rates and homeowners, who either missed out on the refinancing boom or want to put their homes on the market or renovate.
"It will reassure buyers that rates aren't going to be constantly ramping higher," says Wendy Cutrufelli, a mortgage sales and marketing administrator at $63.5 billion-asset Bank of the West in San Francisco. "When markets are stabilized, sellers are more willing to put their house on the market. And buyers don't have to take whatever house they see on the market today out of fear that rates will go up."
"I don't think we're going to see another refi boom," adds Mark Milam, a mortgage production manager in Atlanta at $1.3 billion-asset Heritage Bank of the South in Albany, Ga. "But we have a lot of folks interested in renovation loans and those folks will look to lock in permanent financing in the next 30 days,"
Mortgage originations have plummeted as much as 60% since interest rates began rising May. Refinancing activity which drove bank profits for much of the past three years has dropped off considerably in recent months, forcing many banks to close lending offices and lay off staff. Rates have ranged from 4.375% to 4.625% since mid-June.
Scott Buchta, head of fixed income strategy at Brean Capital, had predicted the Fed's move, saying the economy is "weaker than people think," and the expectation of tapering was not set in stone. But he still doesn't think it will have a big impact on either borrowers or mortgage production.
"Even if we drop a little bit, about half of borrowers are still out of the money," Buchta says. "Primary rates would have to drop below 4% to have a big impact on refinancing activity."
"This does not change the overall direction of the industry which is that refinances are drying up and we need to focus on the purchase money business," adds David Zugheri, co-founder and executive vice president of Envoy Mortgage in Houston "I don't think people are getting their refinance party hats and putting them back on."
Broadly, the Fed's move is no cause for celebration, says Erik Oja, an analyst at S&P Capital IQ.
"If the underlying economy is so weak that the Federal Reserve does not want to remove the stimulus, then that's a concern," he says.
