The Campaign Spot

Mortgage Rates Can Change in a New York Minute, Mr. President.

Don’t count those chickens before they hatch, Mr. President.

In his 100th day press conference, Obama said, “we launched a housing plan that has already contributed to a spike in the number of homeowners who are refinancing their mortgages, which is the equivalent of another tax cut.”

Indeed, this was one of the fastest-acting, and least-disputable signs of positive economic activity, as mortgage rates did drop — for a while. But now they’re bouncing back up, pretty darn fast. “Thirty-year fixed mortgage rates had been holding in the 5 percent range since mid March, averaging 5.03 percent on Tuesday, May 26. But rates jumped in the following days, hitting an average of 5.44 percent on Thursday, May 28.”

And if the rate’s higher, the benefits of refinancing are lower, making some homeowners conclude that it’s not worth it:

Rates in the 5.5 percent range would evaporate roughly 65 percent of refinancing demand because the higher rates don’t offer enough savings to make the transaction worthwhile for many consumers, says Mark Hanson, a managing director who handles real estate and finance research at the Field Check Group. “Why would you want to pay $5,000 to close a loan when you are saving $20 or $30 a month,” he says. “It’s just not enough.” Even more concerning, many consumers have already filled out mortgage applications without locking in their mortgage rates because they expected rates to drift lower before closing. The recent spike in mortgage rates, however, has made many of these yet-to-be-closed, non-locked loans unsalvageable without a sharp drop in rates. “Of all the applications in, 60 to 70 percent are [not locked],” Hanson says. “Out of those, 75 percent are dead.”

The deal isn’t done until the deal is done. And if mortgage rates stay up, this effort to homeowners will flop.

UPDATE: A reader writes in:

I am one of those attempting to do a refinancing of my mortgage with an FHA loan.  The load officer I have been working with told me up front that it was a 6-8 week process because the number of refinancing requests, just in her area, were in the tens of thousands.  Unfortunately I cannot lock down a rate until my application has been approved, so I will probably be one of those that ends up stopping the process because it simply won’t be worth the cost to refinance.  If I had been able to lock in on the day I got the ball rolling I would have gotten a 4.5% loan.  Hard to beat that with a stick.  Now with the rates creeping back up into the mid 5’s it will be a waste of my time and money.  FWIW – the last time I attempted an FHA refinance back in the early 90’s (when 8% was smoking hot good rate!) the same thing happened; tried to do a refinance with FHA to get a better rate but by the time they finally got to the ‘lock in’ time the rates were already near where I was before. 

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