Significant Refinance Potential May Help Mortgage Market in 2014


Using an Olympic theme of “Will Housing Take Gold“, Freddie Mac’s economists said today that, while they had expected housing ‘to come out of the gate at a good clip at the start of 2014, bolstered by an improving economy,” the labor market report for January instead showed a slow start for the residential sector with only 113,000 new jobs created, well below the 2013 average of 194,000 per month.  However the unemployment rate dipped, labor force participation edged up, and 48,000 of those new jobs were in construction and nearly half of those in the residential sector.  The economic analysis, prepared by Freddie Mac’s Chief Economist Frank E. Nothaft and Deputy Chief Economist Leonard Kiefer was published Tuesday in the company’s monthly Economic & Housing Market Outlook

The Federal Reserve seems committed to ratcheting down its acquisition of Treasuries and mortgage-backed securities (MBS) as long as growth remains at least at 2013 levels and also likely to taper down its extra purchases to zero by the end of the year which will put some upward pressure on long-term interest rates.  But the effect of Fed actions on MBS yields in the short term are likely to be mitigated by a recent decline in new issuances related to a seasonal slowdown of new purchase mortgages and a drop in refinancing because of higher interest rates.


Also global capital market investors have shifted funds into Treasuries and other fixed-income assets out of concern over emerging market growth.  Even as the Fed began to taper at the beginning of the year 10-year Treasury yields and mixed rate mortgage rates generally have eased; down about 0.3 percentage points over January and early February.  This has resulted in an increase in mortgage application volume of 20 percent and applications for refinancing rising by 28 percent.


This increase, the economists say, underscores that a significant amount of potential refinancing is out there.  Of the outstanding 30-year MBS for Fannie Mae, Freddie Mac, and Ginnie Mae, over $800 billion have a coupon of at least 5.0 percent.  Even after accounting for servicing and other fees many of the mortgages underlying these securities should have incentive to refinance, provided borrowers can qualify in the current credit environment.


About mortgagelendingstatenisland

I am a mortgage banking veteran with over 15 years of experience at every level of the mortgage arena. I am known as the "closer" because of my troubleshooting skils and ability to explain in detail to my clients and business partners "What Makes A Mortgage Approvable".

Posted on February 19, 2014, in Uncategorized and tagged , , , , , , , , , , , . Bookmark the permalink. Leave a comment.

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