Re-Visiting Refis

Rock-bottom interest rates are attracting more and more homeowners interested in refinancing. But the number of actual refinancings has plummeted.

The U.S. Congress passed President Obama's stimulus bill recently with the hopes of helping reverse the recession brought about at least in part by the mortgage meltdown.

Despite historic lows in interest rates not seen since the beginning of this decade — a boost from the Federal Reserve to help out the moribund housing market — the number of homeowners refinancing is down markedly over the same period a year ago, according to one research firm.

Data from First American CoreLogic, the analytics firm that tracks mortgage originations, shows the number of refinances in the fourth quarter of 2008 nationwide was 670,000, down from 1.4 million in the same period a year ago. This, despite the average 30-year fixed rate falling to 4.5%.

With such attractive interest rates, there should be a rush to refinance. And there is. Applications for refinances are up 40% nationwide over the same period a year ago, says SunTrust Bank economist Gregory Miller.

But just because someone applies for a refinance does not mean they get a refinance. Loans actually closing remain down, way down, according to the research firm. In Florida, 28,000 refinances closed in the fourth quarter of 2008, down from the 96,000 that closed during the same period a year ago.

“Part of the current crisis in the housing-mortgage market, prices have fallen dramatically and home values have fallen dramatically while mortgage interest rates (on adjustable rate loans) have moved up,” Miller says. “This has left way too many homeowners in distress, so they are anxious to refinance into something more affordable.”

But don't expect a revisit of the big refinance tsunami that hit in 2002 and 2003, he warns.

“Mortgage rates have come down 100 basis points since October,” Miller says. “I'd be surprised if we were at a wave of applications. The key to the response is the origination side. With a tight capital market, we've lost a significant share of capital to make these loans because (many) finance companies have left the industry.”

This is far different from before the bubble burst. Then, says First American CoreLogic economist Mark Carrington, credit was easy and flowed freely.

“Appreciation was double digit. It was a purchase boom and people were financing with 100% income only, option ARMs — all sorts of crazy things — and none of those options are available anymore,” he says.

Many home mortgages originated at private mortgage companies, which sold the loans to banks. The banks then sold them to investment firms, which bundled them as securities and sold them to private investors the world over — from pension funds to state retirement organizations, mutual funds to teachers organizations.

Once the bubble popped, many of the private mortgage firms closed their doors because they found fewer lenders to purchase the loans they originated.

With fewer lenders, those that remained tightened their standards in an effort to limit the amount of their losses.

“It makes sense that the (refinance) applications are up, but the number of closings are significantly down,” Carrington says. “Underwriting standards are tighter, so it's harder for people to be approved for a loan.”

Even so, banks are still in the business of making loans, says Scott Maxwell, president of the Mortgage Bankers Association of Florida.

“You don't make money if you don't make loans,” Maxwell says. “If you look at the loan balances of banks, many are up. The industry is being pushed to make more loans, but more prudent loans.”

The loans most likely to close are refinances belonging to homeowners whose mortgages are not under distress and homes have not lost their value — or where they still have considerable equity. However, there are fewer Floridians in those categories, he notes.

“The state of Florida has had one of the bigger declines in property levels versus the averages in the country. Because of the decline in property values, it has caused some consumers to not have sufficient property values to support refinancing their homes, independent of their income or credit,” Maxwell says.

To help homeowners with distressed mortgages stay in their homes, the Obama administration announced the Making Home Affordable program.

The program aims to help borrowers in two ways: by allowing them to refinance loans that are greater than the value of their home and by modifying loans with high interest rates to make them more affordable. The industry responded positively to the new initiative.

“We have been advocating for one, unified approach to help modify or refinance delinquent and underwater loans and thus we think this program will undoubtedly help servicers keep more at-risk borrowers in their homes,” says John
Courson, president and CEO of the national Mortgage Bankers Association.

“(This) is a crucial step to helping stabilize the mortgage and housing markets.”

AT A GLANCE

Mortgage Refinance Data
For Select Florida Metro Areas

REFINANCES
Metro Area 4th Qtr. 2008 4th Qtr. 2007
Bradenton-Sarasota-Venice 1,001 3,359
Cape Coral-Fort Myers 735 3,729
Naples-Marco Island 416 1,826
Punta Gorda 276 915
Tampa-St. Petersburg-Clearwater 4,062 14,010
State of Florida 26,960 95,864
National 811,299 1,682,730
Source: First American CoreLogic

BY THE NUMBERS

Gulf Coast mortgage comparisons
4thQ 2008 4thQ 2007
Prime Subprime Prime Subprime
Purchase Refi Purchase Refi Purchase Refi Purchase Refi
Bradenton-Sarasota-Venice, FL (Metro) 2,013 1,001 5 - 2,759 3,359 42 160
Cape Coral-Fort Myers, FL (Metro) 2,538 735 13 - 3,289 3,729 113 196
Naples-Marco Island, FL (Metro) 896 416 3 - 1,341 1,826 24 73
Punta Gorda, FL (Metro) 385 276 - 3 784 915 11 56
Tampa-St. Petersburg-Clearwater, FL (Metro) 6,240 4,062 30 8 11,143 14,010 340 1,049
FLORIDA 42,738 26,960 255 33 78,584 95,864 2,629 6,887
NATIONAL 890,841 811,299 9,806 1,433 1,496,380 1,682,730 77,486 142,696