Here's Why Banks Aren't Refinancing Your Mortgage Even Though Rates Are At Century Lows

foreclosure homeowner sad

Current mortgage rates should be the answer to everyone’s prayers–the chance to refinance at articificially low rates and enjoy artificially low payments into the hereafter.

But, as David Streitfeld explains in the NYT, banks aren’t refinancing all that many loans.

Why not?

  • They’ve raised lending standards to where they should have been on the first go-round, which makes many homeowners ineligible
  • Many loans are underwater, and banks won’t lend more than the house is worth (shocking, we know). 
  • Many loans have been securitized, so your current bank can’t just modify them on its own.

Some key stats:

An estimated six of 10 homeowners with mortgages have rates that exceed the 4.8 per cent rate currently available on 30-year fixed mortgages, the least risky form of home loans.

Nevertheless, only half as many refinancing applications were reported last week than were reported at the beginning of January, the peak level for the year. The total dollar volume of refinancing activity in 2009 will be about $1 trillion. In 2003, another year when rates fell, it was $2.8 trillion.

Meanwhile, rates are at record lows…and are expected to climb in the spring when the Fed stops subsidizing rates:

It is highly unusual for mortgage money to be available below 5 per cent. Average rates fell as low as 4.7 per cent in the 1940s, as the government held down interest rates to finance World War II, and stayed just below 5 per cent until the early 1950s. Rates went above 5 per cent in 1952 and stayed there — until this year.

The super-low rates are not likely to last much longer. The Federal Reserve program that has driven rates to such lows, which involves buying $1.25 trillion in mortgage-backed securities, is scheduled to expire in March, and Fed leaders have said that it would not be renewed… Some analysts believe rates could jump as high as 6 per cent in the spring.

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