Here's why the mortgage refi boom is over

Scott Mlyn | CNBC

A sign advertising home loan rates for purchase or refinancing at a Bank of America in New York.

Call it the End of the Great Refi Boom.

Lower interest rates used to spark stampedes of homeowners looking to save a few bucks—or pull some cash out of their home equity piggy bank.

But the recent sharp drop in interest rates is not expected to bring hoards of refinancers out of the woodwork. "The refinance boom is over," declared Freddie Mac chief economist Fred Nothaft in the agency's latest refinancing report on second-quarter mortgage volume.

The report noted—for the first time since rates began tumbling in 2008—more mortgages are being written for purchases than for refinancing.

But what a boom it was. Freddie Mac estimates since 2000, American borrowers saved some $70 billion in interest payments from home loan refinancings.

Early on, many of those were "cash-out" refinancings that tapped a rapidly expanding home equity piggy banks. But since the housing bust, Americans have been using refis to build up equity again, according to Freddie Mac data. In the first quarter of this year, for example, some 83 percent of refis were for the same—or smaller—loan balance. And roughly 2 out of 5 refinancers went for a shorter-term loan to pay off their mortgage sooner.

One big reason the boom is over: Most homeowners who can save by refinancing already have done so. Though the yield on a 10-year Treasury note has fallen from 3 percent to about 2.4 percent this year, it's still well above the 1.5 percent bargain basement trough reached two years ago. Those low rates sparked a surge of refinancing from homeowners who locked in rates lower than they would find today.

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"With mortgage rates remaining below 5 percent for the past four years, relatively few homeowners with loans taken in this period would have much incentive to refinance," said Freddie Mac's Nothaft.

Tighter mortgage lending standards also have made it tougher for would-be refinancers to qualify. And while rising home prices have lifted millions of underwater homeowners back on solid ground, roughly 17 percent of Americans with a mortgage still owe more than their house is worth, according to the latest data from Zillow.

Not everyone who qualifies for a refinancing saves money—even if they get a slightly lower rate. A lot depends on closing costs—and how long they plan to stay in their home.

To be sure, there are still potential savings to be had. But apparently savings alone aren't enough to prompt some holdout homeowners to refinance.

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That was the conclusion of a recent study by two economists at the University of Chicago and a third at Brigham Young University. In a recent paper the researchers estimated, based on a large sample of mortgages in December of 2010, about 20 percent of households that would have saved with a refinance didn't do so. If they had, they would have saved and about $11,500.

So the economists decided to find out why—by teaming up with a local housing group that sent hundreds of letters to homeowners explaining how much they would save by refinancing.

When they followed up, the researchers found that about a quarter of households didn't bother to open the letter. About a third who did said they didn't think the savings were big enough to bother with. Another third said they would be willing to consider taking out a new loan.

And another third said they planned to refinance, but just never got around to it.