Everyone recognizes that refinancing to a lower interest rate results in monthly savings and improved cash flow, but there are still too many homeowners ignoring this benefit. Some were incorrectly told they did not qualify; some were not given the correct advice on how to improve their situation so they will qualify; others feel it is too much of a hassle and some simply do not qualify due to job loss or credit score.
However, the Mortgage Bankers Association just reported that refinancing is at a three year high, which is encouraging. As people improve their cash flow, they can pay down debt and also help the economy with their spending.
Add in the recent increase in home values and more people should see the light. In the recent Case-Shiller Index of 20 markets, home prices appreciated 2.2% over prior month, which is one of the biggest jumps in years. Year over year appreciation is up as well- almost 8% per the same study. Pessimists will point out that honme values are still about 45% off the national average from 2006, but realists will point out that those numbers were inflated and unsustainable.
Freddie Mac just released a report ?stating that 81% of homeowners maintained their balance or reduced it when refinancing, another record. Borrowers are lowering their rate and keeping their balance the same but some are bringing cash to the table and dropping their balance.
The reasons differ but typically, a borrower will bring money to closing ?to ?drop their loan balance below jumbo limits; to meet debt ratio or equity guidelines; to remove or avoid mortgage insurance as well as other reasons. For me, that is a strong consumer statement about confidence in housing !
If homeowners are willing to invest in their homes , it shows that viewing a primary residence as an investment is waning ( that is a positive), and that they want to stay in their homes.
While FHA and Fannie have improved their programs for underwater borrowers, Freddie Mac , the author of the study mentioned, still needs to better monitor their program for underwater homeowners. While the program allows for ? no equity?, a few big banks dominate the Freddie market and few offer above 100% of the value, leaving a large amount of borrowers stranded.
While some are upset that ?DeMarco , the acting head of FHFA which oversees both Fannie and Freddie , refuses to offer principle reduction, their focus should be on improving current programs. The latter is far superior for taxpayers and still benefits homeowners. Given The Fed?s action Wednesday ( or lack thereof) , rates should remain low for awhile . If Freddie acts quickly, they can release another study with even better numbers.
Source: http://weekendrealestatereport.com/2012/08/good-news-about-refinancing/
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