Mortgage Rates: Freddie Mac: Where Have All the Originations Gone?

Freddie Mac’s (OTC: FMCC) Primary Mortgage Market Survey® (PMMS) has been tracking weekly average interest rate quotes on 30-year fixed-rate mortgages since 1971.  Rates have moved significantly lower over the summer, with pricing on 30-year and 15-year fixed-rate loans at new survey lows in early August (approximately 4.5 percent and 4.0 percent, respectively).  These are the lowest conventional fixed-rates available in the market in more than 50 years: From 1949-1953, FHA-insured mortgages had contract rates below 4.5 percent, and conventional rates were likely close to these.

Under normal circumstances, such low rates would support home purchases and generate substantial refinance activity.  For example, in 2003, when mortgage rates hit the then-record low of 5.21 percent in the PMMS, nearly $4 trillion in new mortgages were originated, and the refinance share was 70 percent or roughly $2.7 trillion.  The current refinance share has risen to above 70 percent, indicating that borrowers are responding to low mortgage rates.

But the Great Recession and subprime credit crisis have left us with anything but normal conditions today.  Mortgage origination forecasts are well below half of what occurred in 2003.  Where are all the “missing” originations?  One answer is “in cash.”  According to the National Association of Realtors®, about one-quarter of existing home sales are all-cash transactions in 2010, compared with about 5 to 10 percent several years ago.  Similarly, a high share of borrowers in the past few quarters have paid cash in during refinance.  According to Freddie Mac’s Quarterly Refinance Report, more than 20 percent of refinancing homeowners paid down their principal balance when they refinanced in the first half of this year – in contrast, less than 15 percent did so in 2003.  Cash-in refinance may occur because of low yields on other financial investments or the need or desire to reduce loan-to-value in order to obtain the lowest-cost loan.

A second reason why originations are lower than one might otherwise expect in such a low interest-rate environment is that home-value declines have eroded equity so much in some neighborhoods that the borrower no longer qualifies for a low-loan-to-value refinance, and they either lack the cash reserves needed to get back to a qualifying downpayment position or they avoid putting in more cash in the event prices fall further.  The Home Affordability Refinance Program (HARP) has mitigated this problem for many borrowers who find themselves with limited or even negative equity.  This program allows for the refinance of Freddie Mac- and Fannie Mae-owned loans with current loan-to-value ratios of up to 125 percent, with no additional mortgage insurance than what they currently have on the original loan, and no additional underwriting requirements, provided the borrower has been current on their payments for the past 12 months and does not cash-out any equity (a small amount of origination costs may be rolled into the new loan).  Indeed, more eligible borrowers are taking advantage of the HARP as mortgage rates have fallen to lower levels.  In the first half of 2010, nearly 200,000 homeowners have refinanced under the HARP saving on average between $125 and $150 per month on their monthly mortgage payment.

Another reason why refinance originations are falling short is that many borrowers have second liens on their homes, whether from the original home purchase or from subsequent borrowing.  If the second lien is not paid off, then the second lien-holder will be requested to resubordinate their loan to the new (refinanced) first-lien loan.  Some potential borrowers have found that getting their second-lien lenders to submit the resubordination paperwork on time has been challenging, in some cases forcing borrowers to forego refinance altogether.

Lastly, originations volumes are running at low levels because home sales volumes are low – our forecast is for fewer than 5 million new and existing detached single-family home sales in 2010, or 25 percent less than the volume of sales in 2003.  Potential homebuyers remain concerned by the possibility of home value declines even though the National Association of Realtors’ homebuyer affordability index has recently been at some of the highest levels since the index was created more than 40 years ago.  According to the Conference Board’s Consumer Research Center Survey for July, the consumer expectations index for “plans to buy a home within the next six months” is at its third-lowest level since the survey began in 1978.  The homebuyer tax credits did have a marked impact on home sales in the early part of the year, but sales have fallen sharply since the expiration of these credits.  In sum, consumers still seem nervous about investing in homes and, absent big incentives, they are inclined to remain on the sidelines.

Looking ahead, fixed-rate mortgage rates may edge down further, though we think it unlikely that they would fall far from where they are today.  But it is also unlikely that they will rise quickly, especially given the low yields on the 10-year Treasury note, the benign inflation environment (importantly, low expectations of future inflation), and the still-weak employment picture.  Whether on-the-fence homebuyers and potential refinancers will soon take advantage of the historic opportunities presented by the lowest mortgage rates in five decades remains to be seen, but we’re not counting on a change anytime soon. Source: Freddie Mac

Searching for mortgage rates and mortgage refinance rates? Following is a  mortgage rate report released by earlier this week.

Mortgage Rates

Current 30 year mortgage rates are averaging 4.60 percent, down from the previous week’s average 30 year mortgage rate of 4.71 percent. 30 year refinance mortgage rates are also down this week averaging 4.60 percent.

15 year mortgage rates today are averaging 3.85 percent, down from last week’s average 15 year mortgage interest rate of 4.04 percent. Current 15 year mortgage refinance rates are also lower averaging 4.04 percent.

Jumbo Mortgage Rates

30 year jumbo mortgage rates are averaging 5.07 percent, down from last week’s average 30 year year jumbo mortgage rate of 5.30 percent. Current 30 year jumbo mortgage refinance rates are also down to 5.07 percent this week.

15 year jumbo mortgage rates are averaging 4.68 percent, a decline from the previous week’s average jumbo mortgage rate of 4.81 percent. 15 year jumbo refinance mortgage rates today are also down averaging 4.68 percent.

Conventional Adjustable Mortgage Rates

Current 1 year adjustable mortgage rates are averaging 3.19 percent, down  from last week’s average 1 year adjustable interest mortgage rate of 3.21. Today’s 1 year conforming adjustable refinance mortgage interest rates are also down averaging 3.19 percent.

3 year adjustable mortgage rates are up slightly averaging 4.00 percent, up from the prior week’s average 3 year adjustable rate mortgage of 3.97 percent. Current 3 year mortgage refinance rates are also averaging 4.00 percent this week.

Today’s 5 year adjustable mortgage interest rates are averaging 3.54 percent, down from the prior week’s average home loan rate of 3.55 percent. 5 year refinance home mortgage rates are averaging 3.54 percent.

7 year conventional adjustable mortgage rates are averaging 3.86 percent this week, down from the prior week’s average 7 year home mortgage rate of 3.96 percent. 7 year mortgage refinance rates are also lower averaging  3.86 percent.

Current 10 year adjustable mortgage rates are averaging 4.20 percent this week, a decline from the previous week’s average 10 year adjustable mortgage rate of 4.27 percent. 10 year home mortgage refinance rates are also lower this week averaging 4.20 percent.

Jumbo Adjustable Mortgage Rates

1 year jumbo adjustable mortgage loan rates today are averaging 5.35 percent, no change from last week’s average 1 year jumbo adjustable mortgage rate. Today’s 1 year jumbo refinance mortgage rates today are also averaging 5.35 percent.

3 year jumbo adjustable mortgage rates today are averaging 4.27 percent, up slightly from last week’s average jumbo interest mortgage rate of 4.26 percent.  3 year jumbo refinance mortgage rates are also averaging 4.27 percent.

5 year jumbo adjustable home mortgage rates are averaging 3.91 percent this week, down from last week’s average mortgage rate of 3.96 percent. Current 5 year jumbo mortgage refinance rates are also down to 3.91 percent this week.

Current 7 year jumbo adjustable mortgage rates current are averaging 4.55 percent, down from last week’s average 7 year home mortgage rate of 4.61 percent. Today’s 7 year jumbo refinance mortgage rates are also lower averaging 4.55 percent.

10 year jumbo mortgage rates are averaging 5.07 percent, down from the previous week’s average 10 year jumbo home mortgage rates of 5.10 percent. 10 year jumbo home refinance interest rates are also down averaging 5.07 percent.

Conventional Interest Only Adjustable Mortgage Rates

3 year interest only adjustable mortgage rates are averaging 4.16 percent, unchanged from down from last week’s average interest only mortgage loan rate. 3 year interest only adjustable refinance mortgage rates are also unchanged averaging 4.16 percent.

5 year interest only adjustable mortgage rates are averaging 3.73 percent, down from last week’s average five year interest only mortgage loan rate of 3.81 percent. 5 year interest only adjustable refinance mortgage rates are also lower averaging 3.73percent.

7 year interest only home adjustable mortgage rates currently are averaging 4.04 percent, a decline from last week’s average 7 year interest-only mortgage interest rate of 4.12 percent. 7 year adjustable refinance rate mortgages are lower averaging 4.04 percent.

Interest Only Adjustable Mortgage Rates Jumbo

3 year jumbo interest only loan adjstuable mortgage rates are averaging 4.63 percent, down from last week’s average jumbo adjustable interest only mortgage rate of 4.64 percent. Current  jumbo IO adjustable refinance rates are also down averaging 4.63 percent.

Today’s 5 year adjustable jumbo interest only home loan rates are at 4.33 percent, up from an average IO home mortgage rate of 4.30 percent the previous week. 5 year jumbo adjustable IO loan rates are also averaging 4.33 percent.

7 year jumbo IO adjustable mortgage rates currently are averaging 4.90 percent, down from an average jumbo 7 year home mortgage rate of 4.95 percent last week. 7 year jumbo adjustable interest-only mortgage rates are also down averaging 4.9o percent.

Home Equity Loan Rates

Current 10 year home equity loan rates are averaging 7.115 percent, no change from last week’s average home equity loan rate.

15 year home equity rates today are averaging 7.433 percent this week, unchanged from last week’s average home equity loan rate.

Home Equity Line of Credit Rates

Today’s average home equity line of credit rates (HELOC) are at 4.762 percent this week, no change from last week’s average HELOC rate.
Author: Brian McKay
August 11th, 2010
Posted in: Mortgage Rates