A home for sale last week in Oklahoma City as mortgage interest rates hit… (Associated Press / Sue Ogrocki )
Refi madness is smoking hot.
Reacting to record low mortgage rates, borrowers seeking to lower their monthly payments signed up for lower-cost replacement loans last week in numbers not seen in 3½ years.
A Mortgage Bankers Assn. index of refinance applications jumped 20% last week compared with the week before. Applications to purchase homes were up by 4%, the trade group said in a weekly survey released Wednesday.
Rates were plummeting thanks to a new Federal Reserve program designed to stimulate housing and the economy by purchasing mortgage-backed securities. It was the third round of what’s known as quantitative easing, or QE3 as it’s known to Fed watchers.
Freddie Mac’s widely watched weekly survey pegged the average rate for a 30-year fixed home loan at 3.4% last week. That compared with 3.49% the prior week, 4.01% a year earlier, and a rate of well above 6% for most of 2008. Bankrate.com said Wednesday that the overnight average rate for 30-year loans was 3.39%.
Not since April 2009, as the average 30-year rate crashed the 5% barrier, was demand for refinance loans so high, according to the Mortgage Bankers Assn. The trade group said rates for each of the five types of mortgages that it monitors dropped to record lows.
“Financial markets continue to adjust to QE3, as the ongoing presence of the Federal Reserve as a significant buyer of mortgage-backed securities applies downward pressure on rates,” MBA economist Mike Fratantoni said in a news release.
The success of an Obama administration effort to encourage refinances was contributing to the surge, according to the mortgage bankers and a separate report Wednesday from Lender Processing Services, a mortgage technology and data provider in Jacksonville, Fla.
Lenders traditionally wouldn’t refinance homes for borrowers whose home loans added up to more than 80% of the value of their homes.
But the latest version of the Home Affordable Refinance Program, or HARP, has spurred a boom in refis of these high loan-to-value mortgages if they are owned or guaranteed by the government-supported mortgage finance companies Freddie Mac or Fannie Mae.
Borrowers with little or no home equity can qualify for the HARP refinances only if they have made every mortgage payment on time for the past six months and have had no more than one late payment in the past year.
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