U.S. Mortgage Applications Slip, Loan Rates Dip

NEW YORK (Reuters) - U.S. mortgage applications slid last week even as mortgage rates edged lower, with requests for loans to buy homes declining for the first time since early July, an industry group said on Wednesday.
The Mortgage Bankers Association's applications index fell by a seasonally adjusted 2.2 percent in the week ended August 28, as demand for both purchase and refinance loans slipped.

Fixed 30-year mortgage rates averaged 5.15 percent last week, down 0.09 percentage point. This was still above the record low of 4.61 percent set in March yet a year ago this borrowing cost was 6.39 percent.

For a related chart of mortgage rates, right click on the code: and select "Related Graph."

Stability has seemingly returned to the three-year housing market that has endured the deepest crash since the Great Depression. The view that the worst may have passed is gaining traction.

Pending home sales, based on contracts signed in July, jumped 3.2 percent to a two-year high, the National Association of Realtors reported on Tuesday.

Economic stimulus that has boosted consumer optimism, signs that home prices have neared a bottom, and federal programs such as a soon-expiring first-time home buyers tax credit have turned more fence-sitters into house purchasers, industry experts said.

The NAR estimates that as many as 2 million first-time buyers will use the tax credit this year, and about 350,000 sales would not have occurred without it. Buyers need to close their loans by November 30 to qualify.

Sherry Chris, president and chief executive of Better Homes and Gardens Real Estate in Parsippany, New Jersey, expects a rush of applications in the waning weeks of the tax credit.

Once that phase passes, "if we see the continuation of the slight upturn that we're experiencing now, that to me will indicate that the market has in fact turned and we'll begin to see an upswing," she said. "We have a couple months of waiting to see if we've truly turned the corner."
The first-time buyer's market has been robust, but not the move-up market -- or the market for existing homeowners looking to trade up to a larger home. It will take consistent news of rising home prices to lure the move-up buyer, most realtors agree.

"There are a lot of people talking about the worst being behind us," said Chris, who calls herself cautiously optimistic. "There are so many other factors involved: the economic conditions, unemployment, consumer confidence."

The U.S. unemployment rate is expected to have risen to 9.5 percent in August, after declining in July for the first time since April 2008, according to a Reuters poll. The jobless rate had reached a high last seen nearly 26 years earlier.

The Mortgage Bankers Association said its purchase loan applications index dipped 1 percent to 277.6 last week. The last time this measure fell was in the July 10 week, when it was about 7 percent lower at 258.8.

The industry group's refinance index fell 3.1 percent last week to 2,164.1 after rising two straight weeks. Still, this measure of refinance demand was around three times stronger in the spring when mortgage rates toppled to a record low.

Only the government purchase index rose last week, the MBA said. The 0.5 percent rise put the seasonally adjusted index up for the seventh straight week.

The government-insured share of mortgage purchase applications rose to 40.4 percent in August, the highest since February 1991, the group said in a release.

Loans insured by the government typically require lower down payments than other mortgages.

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The first-time buyers are many but the  move-up market or the homeowners looking for a larger home is low, will lost cost refinancing plays a role on this?

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Refinance? Firtst, see whether you will save

When mortgage rates fell below 5 percent last month, broker Jeff Perdue's phone lines lighted up as dozens of people tried to join the latest refinance boom. When the ringing stopped, only five were approved.

The rest had good credit, good income and "decent equity" in their homes, but that wasn't enough, said Perdue, owner of Orlando Home Mortgage.

"The value of their homes killed the deal," he said. "I had to call them and tell them, 'I'm sorry. If your house had been worth what it was when you bought it, this would have been a piece of cake. Now the numbers don't make sense for you.' "

Perdue's story is a cautionary tale for many who hope to refinance their mortgages and take advantage of some of the lowest rates in history. For the lucky ones, refinancing can wipe way thousands of dollars a year in mortgage payments -- a bright spot in an otherwise dim economic picture.

But if Perdue's report is any indication, the approval rate may be fractional in this re-fi "boomlet."

"It's not such a bright spot if you're upside down in your mortgage," said Philip van Doorn, analyst for TheStreet.com Ratings. "Some will indeed benefit from the low rates, but not as many as you'd think."

There is no surefire formula to determine whether you should refinance. First of all, focus on your potential savings, not whether your new rate will be a point or two lower than your current one.

Divide the total cost of the loan by the monthly savings from refinancing. That gives you a break-even point: the number of months before it pays off. You should live in the house at least that long for it to be worthwhile.

Beyond that, it gets more complicated. What is your credit score, and what interest rate will it fetch? What are your closing costs? Have you shopped around for the best deal? What is your home's appraised value and subsequent loan-to-value ratio? That last item alone that can scuttle refinancing these days even if other planets are aligned.

If the refinanced loan amount is more than 80 percent of the home's value, borrowers must pay a mortgage-insurance premium, which can dramatically reduce any savings. If it goes over 90 percent, you would have to bring money to the table, which could make the deal cost-prohibitive.

Plummeting housing prices will turn many homeowners into bystanders in this refinancing wave.

"Many who don't have much or any equity are not invited to the refinance party," said Greg McBride, senior financial analyst for Bankrate.com.

However, if you are among those who are in good shape with your home equity, credit score and debt level, you have a nearly unprecedented opportunity to lock in the best rates in more than four decades.

"These must be considered the lowest rates we might see in our lifetime, and they are unlikely to stay this way," said Jason Chepenik, a financial planner and managing partner of Chepenik Financial in Orlando. "If you do qualify, you should consider paying the extra point or so to buy your 30-year mortgage rate to the low 4-percent range."

Even if you are creditworthy, however, don't expect easy credit this time around.

"Only good borrowers need apply," said Andrew Orr, a financial planner with OrrGroup Financial. "We are back to the 1950s, so to speak, when people wanted a home for shelter, not for an investment. So, it's actually a good situation now, even though it makes it difficult for people to get a mortgage."

Richard Burnett can be reached at rburnett@orlandosentinel.com or 407-420-5256.

By:
Richard Burnett Sentinel Staff Writer

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 It is a good tip for everyone that before considering refinancing
one should focus on potential savings.

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Homeowners Rescue Program Shows Slim Benefits

Last summer, after several months of negotiations and debate, Congress passed a housing bill aimed at easing the mortgage foreclosure crisis. One part of the sweeping bill was designed to help homeowners who were having trouble with their high-rate mortgages refinance with lower-cost, government-backed loans.

But the program, called Hope for Homeowners, has gone largely unused, and a House committee on Tuesday holds a hearing to find out why.

The issue serves as a cautionary tale on the limits of government's ability to deal with the complex subprime lending crisis.

When the Senate began debating the Hope for Homeowners program last spring, Senate Banking Committee Chairman Chris Dodd (D-CT) was, well, full of hope for the program.

"This Hope for Homeowners Act, I believe, will give us a positive confidence-building measure that will allow people to remain in their homes where appropriate and, secondly, allow us to get to a bottom I hope and a floor where capital will flow again," Dodd said at the time.

Low Expectations, Tough Rules

By the time the measure was approved last summer, the expectations were already modest. Congressional analysts forecast that just 400,000 mortgage owners would be served by the program. But even those low expectations proved optimistic.

There have been only 451 applications, and only 25 loans have closed since the program started in October, says Meg Burns of the Federal Housing Administration, which is in charge of implementing the program.

There are several reasons that the numbers of participants are low. It's not a great deal for homeowners. Loan fees and interest rates are high. Borrowers have to provide two years' worth of financial records and certify they did not provide misleading information to bankers. Lenders, meantime, have to be willing to take a loss on their existing loans. And if the value of a house increases, homeowners have to share that equity with the government.

John Taylor heads the National Community Reinvestment Coalition, a housing advocacy group.

"You have to give 50 percent of all you've earned even though you've paid off the loan at high rates to the federal government, so you can see why I say I think they sat down with Tony Soprano to design the original program," Taylor says.

A Product Of Compromises

While no loan sharks are believed to have taken part in drafting Hope for Homeowners, the bill was a product of compromises between Democrats in Congress and the Republican Bush administration. There were many political trade-offs between conservatives who wanted tough safeguards and liberals who wanted greater access to the program.

Rep. Barney Frank of Massachusetts (D-MA), who helped draft the original bill, admits it has its flaws.

"What is says is if you have problems of unprecedented magnitude and difficulty, human beings don't always get it right the first time. Is that a surprise to anybody?" Frank says.

Frank says that while the government may have mishandled its first approach to the problem, the subprime crisis was brought on by decisions in the private sector. Frank, who chairs the House Financial Services Committee, is unveiling a proposal Tuesday to rework parts of Hope for Homeowners to relax some provisions that were aimed at preventing abuse.

Frank's bill would lower the program's fees and interest rates. He's optimistic that this time, the government will get it right.

by Brian Naylor

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It's great that Congress passed a housing bill aimed at easing the mortgage foreclosure crisis. This would be helpful to people who want low cost refinancing for their mortgage. Im thankful that they have finally created the Hope for Homeowners Act.

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