Is Refi Ready for a Revival?
The long-dormant refinance side of the mortgage market saw a blip of new life last week, and a new effort to raise public awareness of federal refinance efforts is poised to stir increased activity in this shrinking sector. But is this a start of a new refinance revival? According to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending June 27, the Refinance Index upticked 0.1 percent from the previous week. The refinance share of mortgage activity increased to 53 percent of total applications from 52 percent the previous week. In comparison to the refi activity, the Market Composite Index decreased 0.2 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index decreased one percent compared with the previous week. The seasonally adjusted Purchase Index decreased one percent from one week earlier, while the unadjusted Purchase Index decreased one percent compared with the previous week and was 16 percent lower than the same week one year ago. Tommy A. Duncan, president of Brentwood, Tenn.-based Quality Mortgage Services LLC, did not put much weight into last week’s stirring of refinance activity as evidence of a new rally. “It is just a heartbeat,” Duncan said. “As with any heartbeat, it goes up and down.” Yet the refinance side of the industry may see more activity if the federal government has its way, according to Dr. Anthony B. Sanders, Distinguished Professor of Real Estate Finance at George Mason University in Fairfax, Va. Dr. Sanders noted that Mel Watt, director of the Federal Housing Finance Agency (FHFA), is heading to Chicago next week to launch a series of community outreach events next week designed to draw new attention to the Home Affordable Refinance Program (HARP). “In the Chicago area, more than 33,000 homeowners may qualify for HARP because they meet criteria that include having mortgages with more than 10 years left on them, with balances of more than $50,000 and with interest rates that were at least 1.5 percent above current market rates, according to the FHFA,” Dr. Sanders observed in his Confounded Interest blog, adding that HARP activity is now running at low levels. “Despite changes made to the program in 2012 to widen the pool of potential participants, the number of refinancings has significantly dropped, to almost 20,000 loans nationally in April, from almost 107,000 loans in April 2013, according to a FHFA report.” Rocke Andrews, broker/owner at Tucson-based Lending Arizona LLC and vice president of NAMB—The Association of Mortgage Professionals, was not optimistic about the FHFA’s new HARP push. “I think the majority of people could have used HARP have already taken advantage of it,” Andrews said. “For those that did not, a lot of them were not eligible for various issues.” Andrews added that economic circumstances would need to change dramatically to see any great revival in refinancing. “We would have to drop below four percent before we’d see any flurry of activity,” he said. Dean Wegner, a Scottsdale, Ariz.-based originator with Academy Mortgage Corporation, believes that HARP needs retooling before it can generate renewed effectiveness. “I think HARP, when viable, was a great solution for some people,” Wegner said. “However, it is very narrow in scope, and as a result, most originators lost confidence in the program because more often they say no than yes. If they can expand the guidelines to more people, then it will definitely be a success.” “I don't think that there are enough borrowers who the FHFA can convince to do HARP loans to jump start the refi business—the fall-off in volume has simply been too dramatic,” said Rick Sharga, executive vice president at Irvine, Calif.-based Auction.com. “And if HARP-eligible borrowers weren't inclined to take action when interest rates were lower—and home prices hadn't recovered as much as they have now—I doubt they'll be all that motivated to do anything today. On the other hand, if Mr. Watt could deliver a HARP-like program that would be available to borrowers who don't have GSE loans, we might have an entirely different conversation.” HARP is slated to end in December 2015. For Bill Gassett, real estate agent at Hopkinton, Mass.-based RE/MAX Executive Realty, the new FHFA efforts help to remind both distressed homeowners and housing industry professionals that HARP has not become history yet. “One of the biggest issues in the mortgage/real estate industries it the awareness of such programs,” Gassett said. “Oftentimes, there is not enough done for those who may benefit from these types of programs. I know even among my own colleagues in real estate there are very few who know of such programs. But, this could also be a case of too little, too late.” Dennis Carlson, deputy chief economist at Atlanta-based Equifax, believed that the FHFA’s new HARP campaign can be seen as a positive development. “There are still quite a few households eligible for HARP,” Carlson said, adding that he recently took advantage of HARP for his homeownership needs. “Creating that awareness is a good thing.” Separate to this, Carlson noted new Equifax data that found existing home finance write-offs year-to-date in May is $43.5 billion, a seven-year low and a decrease of more than 37 percent from same period a year ago. While Carlson greeted this data as “excellent news,” he stressed that the economic bigger picture is still a challenging environment. “Housing will recover, but we will not see a rocket ship,” Carlson said. “Americans are still gun shy about making the biggest purchase of their lives.”