by Amy Lillard
Feb 2, 2009 - While new home purchases may be declining, the number of homeowners seeking to refinance their mortgages is skyrocketing, according to new figures from the Mortgage Bankers Association.
The volume of applications filed to refinance increased 15.8% last week compared with the previous week. At the same time, applications for new mortgages dropped a seasonally adjusted 11.2% for the week ended Jan. 30 as opposed to the previous week. Refinancing made up 73.2% of the total applications filed last week, up from 72.8% the week before.
As more and more homeowners seek to refinance out of ARM loans or to simply capitalize on lower rates, new government proposals may make refinancing even more attractive and attainable.
Fannie Mae announced plans this week to loosen rules for homeowners seeking to refinance dropping some credit-score requirements, reducing income documentation standards, and waiving appraisals. The new rules will apply to homeowners with loans that Fannie Mae owns or guarantees. Company executives noted that the new rules would allow borrowers to take advantage of today's lower interest rates and cut through the red tape holding needy homeowners back.
Another potential benefit for homeowners may come from the Stimulus Bill currently making its way through Congress. This week the Senate added tax relief for homebuyers to the $900 billion economic stimulus bill, offering a tax credit of up to $15,000 or 10 percent of a home's purchase price, whichever is less. This tax credit will apply for any home bought as a primary residence, for one year after the stimulus bill is signed into law.
But at a time when refinancing is increasingly necessary for some homeowners, and ideal for others, a setback could come from higher interest rates. This week the average U.S. rate on a 30-year fixed mortgage rose to 5.25%, up from 5.10% last week. The rising rate is due to investor concern that the new stimulus bill and new administration could increase spending. The effect could thwart the ongoing Federal Reserve efforts to ease the credit crunch and cut borrowing costs, and damage the power of these government proposals.
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