Rising Mortgage Rates Block Refis

As the yield on the 10-year Treasury hits a six month high, you can almost hear all the doors slamming over in refi land. While you'd think most borrowers had already refinanced their loans to take advantage of the recent record-low interest rates, many have actually not, and their opportunity is fast falling.

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Refinance applications have fallen steadily since the first week in October, as mortgage rates began to rise.

Now a $500 billion block of loans has become "clearly not refinanceable" according to Deutsche Bank.

"The mortgage rate for a high concentration of 30-year borrowers clusters just below 5.00 percent...as the 30-year Freddie Mac primary survey rate increased from the low of 4.17 percent on 11 November to 4.46 percent on the latest reading, the average refinancing incentives for these borrowers has dropped from 76 bp to 47 bp, putting them at a brink of break-even refinancing spread."

There are currently $10.5 trillion in mortgages outstanding, and there have been about $2 trillion in refinance activity since the beginning of 2009, according to Inside Mortgage Finance. So one in five borrowers have refinanced. Why so relatively few, given the historically low rates this year?

"Because underwriting is much tougher than it has been in several decades, there is no non-prime market, one in five borrowers are underwater and unemployment is close to 10 percent," instructs Guy Cecala of IMF.

Still, I'm sure there are a fair number of borrowers who could still have taken advantage of lower rates and improved their finances some, especially given the government refi programs designed to help underwater borrowers.

As rates go up, those programs will likely become less effective.

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