Resets Keep Refi Volume High
With long-term interest rates continuing to slip, it's no surprise that refinancing volume is once again on the upswing. Earlier this year, evidence of elevated refinancing continued to crop up in the Mortgage Bankers Association's weekly loan application survey even as rates edged up. And in December, the MBA's refinancing index reached its highest level since October 2005. And the refinancing share of new loans, at 52.6%, was at its highest level since April 2004 in mid-December.
But it's not just a simple case of swapping to a lower rate loan in many cases. For many homeowners, those ARM loans they chose for a teaser rate are less attractive as they reset to a fully indexed monthly bill. The MBA estimates that between $1.1 trillion and $1.5 trillion of ARM loans are scheduled to reset this year. Furthermore, MBA chief economist Doug Duncan told reporters that he expects some $600 billion to $700 billion of those loans to refinance prior to the scheduled rate reset.
As the remaining loans reset to higher rates, that could push up delinquencies among those ARM borrowers, Mr. Duncan said.
ARMs now account for about 58% of outstanding subprime loans, he added. That's about 10 percentage points higher than the ARM share of the subprime market used to be. The big factor in the higher refinancing numbers may still be lower interest rates, however. The MBA noted that over the last six months, long-term mortgage rates have declined by more than 80 basis points. (c) 2007 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com http://www.sourcemedia.com