Mortgage rates inched down as investors and borrowers took a wait-and-see approach. With eyes on Europe, investors want to know how the debt crisis will unfold.
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In the meantime, borrowers in the United States wait to learn if they really will be able to refinance their mortgages now that regulators made changes to a federal refinance program designed to help borrowers who owe more than their houses are worth.
The benchmark 30-year fixed-rate mortgage fell 5 basis points this week, to 4.33%, according to the Bankrate.com national survey of large lenders. A basis point is one-hundredth of 1 percentage point. The mortgages in this week's survey had an average total of 0.42 discount and origination points. One year ago, the mortgage index was 4.51%; four weeks ago, it was 4.30%.
The benchmark 15-year fixed-rate mortgage fell 1 basis point, to 3.57%. The benchmark 5/1 adjustable-rate mortgage fell 2 basis points, to 3.22%.
Borrowers React to HARP Announcement
Some mortgage lenders say that since the Federal Housing Finance Agency announced changes to the Home Affordable Refinance Program, or HARP, this week, they have been swamped with phone calls from underwater borrowers who want to use the program to take advantage of today's low rates.
"My phone has been ringing off the hook with the people wanting to refinance" through HARP, says Derek Egeberg, a mortgage planner at Academy Mortgage in Yuma, Ariz. That's because the old HARP rules allow borrowers to refinance at up to 125% of their homes' current values. The new rules will remove that cap and will allow borrowers who are current on their mortgages to refinance regardless of how deeply underwater they are.
But these borrowers can't apply to refinance yet. Lenders will not adopt the new HARP guidelines until regulators provide more details, which are forthcoming by Nov. 15. After that, lenders will probably take a few weeks to update their internal rules.
Egeberg says he hopes the new version of HARP works, but he fears that when more details are released in November, many eagerly waiting borrowers will be disappointed that refinancing their underwater mortgage won't be as simple as they thought.
"Everybody is getting juiced about (HARP), but we may be getting people emotionally charged up about something that may not work -- and we won't know that until" more details are released.
John Stearns, a mortgage banker at American Fidelity Mortgage in Mequon, Wis., says he, too, thinks some borrowers might be disappointed, especially because the new HARP guidelines don't address second mortgages. Borrowers can't refinance using HARP unless the lender on the second mortgage grants permission.
"Many people with second mortgages didn't qualify before, and they won't qualify" under the revised guidelines, Stearns says.
Mortgage Applications Increase
But homebuyers as well as homeowners who have some equity in their homes have continued to take advantage of near-record-low rates, says Egeberg.
"About 80% of my business has come from purchasers," he says, including many first-time homebuyers. "They are buying a home for half of what they would have paid at the height and with a much lower interest rate."
Mortgage applications increased 4.9% last week compared to the previous week, according to the Mortgage Bankers Association's weekly survey. Refinance applications increased 4.4%, and purchase applications increased 6.4%.
How Long Rates Remain Low Depends on Europe
Many in the mortgage industry expect mortgage rates to remain low at least through the rest of the year, but that assumption could change at any time depending on how the situation in Europe unravels.
Eurozone leaders met this week to discuss a second bailout for Greece and additional rescue measures to ease the debt crisis that has lingered in Europe for months. As investors see signs that the situation in Europe is getting under control, the stock market improves, putting upward pressure on mortgage rates. But once investors begin to doubt that a solution is near, they pull out of riskier investments and seek safety in Treasury bonds, fearing the crisis in Europe will spread. Those fears and doubts have prevailed lately and have helped keep rates low.
"At this point, mortgage rates seem to be again following the stock market with rates falling when stocks seem to struggle," says Brett Sinnott, director of secondary marketing at CMG Mortgage in San Ramon, Calif.