Underwater Homes Trap Borrowers into Higher Rates

in Federal Reserve Gold Gold Market by admin — March 4, 2010 11:30 am | no comments

� � � According to the Mortgage Banker’s Association (MBA), U.S. residential mortgage originations will plunge 40 percent this year to the lowest level in a decade. Per the downgraded forecast, lenders will underwrite only $1.28 trillion in home loans in 2010, down considerably from the $2.11 trillion originated in 2009. That would be the lowest volume figure since loan officers cranked out $1.14 trillion in 2000. Even still, new purchase originations are expected to rise slightly to $776 billion from $742 billion in 2009. � That leaves refinance originations as the market that will likely take the biggest beating. In fact, according MBA projections, the dollar volume of loans being refinanced this year will fall to just $502 billion from $1.372 trillion in 2009. That equates to a 63% drop in refinance originations alone—-a massive downturn. The reason for this is simple: Low rates or not, millions of homeowners can’t refinance…. From The Wall Street Journal by Nick Timiraos entitled: Borrowers Miss Out on Billions in Savings “The Federal Reserve has pushed mortgage rates to near half-century lows, but millions of U.S. homeowners haven’t benefited from that because they can’t-or won’t-refinance. Falling home prices have left many owners with little or no equity, making it harder to qualify for refinancing. Moreover, stricter lending standards and higher fees by banks and mortgage giants Fannie Mae and Freddie Mac and declining incomes have made it tougher and less attractive for borrowers to seek new loans. Around 37% of all borrowers with 30-year conforming fixed-rate mortgages-who collectively hold about $1.2 trillion of home loans-have mortgage rates of 6% or higher, according to investment bank Credit Suisse. Many could reduce their rates by a full percentage point if they refinanced at current rates, about 5%. More than half could lower their rates nearly three-quarters of a percentage point, according to Credit Suisse. But new refinance applications in January stood near their lowest levels in the past year. Weekly data compiled by the Mortgage Bankers Association also…