Mortgage refi forecast slashed as loan rates rise

Citing the spring jump in long-term interest rates, the Mortgage Bankers Assn. is taking back the wildly optimistic forecast it made in March about home loan refinancings this year.

That will give Federal Reserve policymakers more to chew on as they gather in Washington on Tuesday for their first meeting of the summer.

The mortgage group said it now expected refinancing volumes to reach $1.3 trillion this year, down from the $2 trillion it had predicted just three months ago.

That means, of course, that a large number of homeowners won’t be realizing savings from cheaper mortgages.

MBA Chief Economist Jay Brinkmann said he scaled back the forecast because of the rebound in home loan rates, which have been pushed up by rising long-term Treasury bond yields. The average 30-year mortgage rate as tracked by Freddie Mac was 5.38% last week, up from 4.78% in late April.

Treasury bond yields have jumped amid the government’s record borrowing wave and as some investors sold Treasuries to buy stocks, commodities and other higher-risk investments. Although the Fed has been buying mortgage-backed bonds and Treasury bonds for its own portfolio this year, it hasn’t been able to keep a lid on long-term interest rates.

The Fed could end its meeting Wednesday by announcing that it will boost purchases of mortgage bonds and Treasuries, but many analysts believe that’s unlikely.

The mortgage group said its pared forecast for refinancings also reflected the very slow start to the government’s Home Affordable Refinance Program (HARP) for loans held or guaranteed by  Fannie Mae and Freddie Mac. The plan is aimed at homeowners whose mortgages exceed their property values by as much as 5%.

That still leaves too many underwater homeowners shut out of refinancing, critics of the program say. The chief regulator of Fannie and Freddie suggested last week that to boost participation in the program, the maximum loan-to-value ratio for HARP refinancings might rise as high as 125% from the current 105%.

-- Tom Petruno

Photo: The Federal Reserve building in Washington.

Comments

[Megan Rose]

All homeowners are hurting- there is a new grassroots effort called 4/40 for Freedom that is taking a program to Congress that would modify all existing homeloans (if the owner opted in) to 4% for 40 years. There is also a component for new home buyers....this would stimulate the economy like no one has ever seen...saving homeowners 33-38% per month! Sign the petition at 4-40forfreedom.com and tell your elected officials you want this!

[Gimme A BREAK!]

Yes, TRILLIONS for the Robber Barons of Wall Street, and the goons of Detroit, but for the people who WILL HAVE TO PAY FOR THIS POLITICAL LARGESS, one might say washington says 'skrew ewe!' Maybe, if we realized the incumbent politicians are NOT representative of EITHER Party, but have more in common with National Socialists and Communists, we could rid ourselves of the Neys, Jeffersons, Cunninghams et. al., and get back to a moderate, REPRESENTATIVE democracy??????

[erick]

i am buying a new home that should be finished built in 92 days. i have not lock my rate in yet. the loan amount will be 570000. im putting about 210000 down. sell price is 780000. i can lock in my rate on a 30 year fix at 5.125 at 1.675 pounts. shoud i wait another 30 days hoping rates may drop or just lock?

erick in laguna