Concerns that the economy may be headed back toward a recession have caused mortgage rates to fall to the lowest levels of the year. For a renewed wave of refinancing, however, rates may have to fall even more.
The average rate on a 30-year fixed mortgage was down to 4.39% at the end of last week. Almost 40% of all borrowers with a loan on this type of mortgage could lower their rate by a percentage point, provided the current rates. Some, however, may not quality due to a lack of equity in their home.
Analysts predict that mortgage rates would have to be about 4% to trigger any major activity in refinancing.
Mortgages rates are closely tied to ten-year Treasury notes, and these are dropping as uneasy investors gather Treasury securities and sell stocks.
The Treasury and the Federal Reserve have been expending much effort in keeping mortgage rates low and attempting to bolster refinancing. Washington established a program two years ago allowing borrowers who owe more on their properties than they are worth to, and whose loans are backed by Fannie and Freddie; to refinance if the amount of the mortgage isn’t over 125% of the home’s value.
Some analysts say banks are hesitant to refinance riskier borrowers, even those with loans guaranteed by Fannie and Freddie, because they are unwilling to assume the risk that they could be required to repurchase the loan in the case of a default.
Policy makers are trying to find ways to ease some refinancing obstacles. One bill introduced would waive risk-based fees, get rid of the 125% loan-to-value limit, as well as other tweaks to the refinance program. The goal is to bolster confidence for borrowers who have reached the end of the rope.