Lack of Refinancing Is Another Blow For Housing

A surprise in this morning's weekly mortgage applicationsreport from the Mortgage Bankers Association. I'm not talking about the part that said purchase applications tanked another 5.7 percent, now down 42 percent from where they were at the end of the home buyer tax credit April 30th. I'm talking about the refinance index.

Refinance Application
Refinance Application

Despite the rate on the 30-year fixed still hanging around 4.8 percent, refinances took a plunge last week for the first time in a month, down 14.3 percent.

"Despite the historically low rates, many homeowners have already refinanced recently, remain underwater on their mortgages, have uncertain job situations, or have damaged credit following this downturn, and therefore may not qualify to refinance," writes Michael Fratantoni, MBA's VP of Research and Economics.

I was wondering when we would get to this point, given that everyone I know has refi'd in the past few years, including me. I realize it's just one week of data, and one week does not a trend make, but refinancing has been a big help to today's economy, giving borrowers much-needed extra cash.

Mr. Fratantoni makes some valid points, although for underwater borrowers, they can now refi under the government's Making Home Affordable Program, which allows refi's on conforming loans with up to 25 percent negative equity.

The issue of damaged credit is a bigger deal, since you can't have missed a payment on your loan to qualify for the government's refi program (you could however possibly qualify for a modification). The damaged credit may be in other areas, like credit card debt.

In any case, the lack of refis in such a positive mortgage rate environment is nearly as bad a sign as the now 5-week drop in purchase applications. It just proves that government involvement in the housing market is a double-edged sword; it helped in the short term, but will clearly require payback for a long way down the road.

Questions? Comments?