Reuters reported today that borrowers are chomping at the bit to refinance their existing home loans in a bid to take advantage of the super-low mortgage rates currently on offer.
Per the article, the amount of mortgages eligible for refinancing increased by roughly 50 percent to more than $3 trillion, based on estimates using Bear Stearns data.
What they mean by “eligible for refinancing” is loans that currently sport interest between 6 percent and 6.5 percent, which would likely benefit from the lower rates.
“There is pandemonium right now at the mortgage banks,” said Bob Walters, chief economist at Quicken Loans. “They are knee-deep in telephone calls,” he said.
Walters said Quicken Loans saw a 50 percent increase in loan applications after the recent Fed rate cut, while a LendingTree spokeswoman said refinance applications surged 230 percent to a record high.
I’ve heard the same from friends in the industry, who reported an influx of calls since Wednesday from borrowers looking to capture the lower rates.
Yesterday, Freddie Mac said mortgage rates fell for the fourth consecutive week to their lowest level in nearly four years, with the 30-year fixed-rate mortgage averaging 5.48 percent.
And earlier in the week, the Mortgage Bankers Association said refinances made up 66 percent of total applications, up from 62.7 percent the week prior, and much higher than the sub-50 percent share in mid-November.
But are those looking to refinance the borrowers who are in trouble, or just ordinary homeowners looking to take advantage of the lower rates?
I’m assuming that those in dire need of a refinance probably don’t have the home equity or documentation to lock in the low rates, considering the tough underwriting guidelines in place at the moment.