Refinancing applications declining

Mortgage rates for the week ending August 26, 2011 remained relatively unchanged, with mortgage loans still available at historically low rates. Yet refinancing applications declined for the second week in a row, according to the Mortgage Bankers Association (MBA).

While homeowners along the East Coast last week were distracted by an earthquake and preparations for Hurricane Irene, that doesn’t completely explain the lack of applications for a home refinance. The MBA’s Weekly Mortgage Applications Survey showed that home loan applications dropped by 9.6 percent compared to the previous week, while the Refinance Index declined by 12.2 percent from the previous week.

“Accounting for the increase in average points paid, effective mortgage rates were little changed last week.  Refinance application volume declined for a second week from recent highs, despite rates staying near a 10-month low, while purchase volume remained near 15-year lows,” said Mike Fratantoni, MBA’s vice president of research and economics.

Mortgage rates rose very slightly on 30-year fixed-rate home loans to 4.51 percent, while mortgage rates dropped slightly on five-year adjustable rate mortgages (ARMs) to 3.20 percent, according to HSH.com.

Refinancing help from the government

HSH.com’s mortgage trends analysis says that mortgage rates may rise a little or stay the same over the coming weeks, in part because investors in mortgages are wary of the potential government program to help underwater homeowners refinance. While refinancing is beneficial to homeowners, investors tend to lose out because their cash flow from the old mortgage is reduced.

Although no official announcement has been made, if you have been unable to take advantage of low interest rates to refinance a home because you have little or no equity, a new program may be on its way that could allow you to refinance as long as you are current on your home loan.

According to HSH.com, “In the present environment, many homeowners are current on their old high-rate loans but cannot refinance due to a loss of income, or equity, or a credit rating which now falls below market norms. So far, programs to address some of the borrowers — Making Home Affordable’s HARP and FHA’s Short-Refi program — have fallen woefully short of goals of helping millions of borrowers, and the administration is studying ways to get more people into the program.”

If you are one of those homeowners waiting to refinance, keep your eye on the news out of Washington to see if a new program might benefit you.