Or are lending guidelines just too tight to see a substantial increase in closed loans?

Not with the lack of equity... low rates do help, but rates have been in the 5s and 6s pretty consistently for the past 5 years or so.

It's not so much the guidelines, but the hits you take for credit scores are huge.  I priced a client today for a cashout refi with 665 scores  to 80% and the lenders rate sheet didnt go high enough to even pay yield spread.  I think it was 6.875 still costing.

Victor Burek:

It's not so much the guidelines, but the hits you take for credit scores are huge.  I priced a client today for a cashout refi with 665 scores  to 80% and the lenders rate sheet didnt go high enough to even pay yield spread.  I think it was 6.875 still costing.

 

Go FHA and the payment with MIP will be lower than your conforming payment.  Five years down the road, the MIP falls off and their payment will drop again!

I do loans in Texas, no FHA cashouts in Texas.

Victor Burek:

I do loans in Texas, no FHA cashouts in Texas.

Well, I heard eveything is bigger in TX... guess that includes rates.

Unless you have a 700 score or better, cashouts are tough here.

And once a cash out - always a cash out in TX.  That makes it even harder.

If we see 4.5% rates with some YSP, you bet your bottom dollar it will be a boom.  Forget about the cashouts and forget about self employed folks without decent tax returns, there are plenty of other folks out there that bought and refi'd at 5.75% on up that would love to get some of that 4.0 to 4.5% money....after all, we'll be selling long term savings, not short term payment and time to recoup new closing costs....

There will be plenty of FHA streamlines, VA streamlines, and good ol' Rate and Term deals where the customer gets $2k in their pocket and skips 2 mortgage payments! 

So the answer is YES, most definitely YES, the low rates (as long as their's some ysp in it and are in the 4-4.5% range) will spark a refi boom!  And YES, even with rates in 4.5% to 5%, we will see a lot of refi's as well....but maybe we'll call that a refi bang, not quite a boom.

This may take time, but I have already seen a change in volumes. I have expected this for a number of years albeit that this is coming very slowly. When I think of the 10% of all the mortgages in default and another 10% at risk, there leaves 80% of those that have had a mortgage for many years. Maybe even ten years or more. They rode the train of value appreciation over that time. Now there might have been a decline on their total increase, they originally had to put money down and may have gotten a fixed rate mortgage at 5.75% to 6.25% (still very attractive rates generationally speaking). If rates drop below 5%, there are still many that would like to take advantage of that by shortening the terms of their loans or dropping their payments by $200.00 or $300.00 per month. This should do a few things...provide the necessary cash flow for our consumer economy to start to turn the corner, create greater confidence over time and allow the guidlines to ease enough to get us back to what we experienced in the early 90's. This will take time but I do feel that a refi boomlette will allow those of us who stuck this rout out to make a great living at what we do best.

I agree completely with jdeyber.  The bigger question seems to be not if we will get to 4.5%, that almost  appears to be a foregone conclusion, how long will it last?  If rates stay in the sub-5% range long enough for values to bottom and stabilize, then we will see the boom.

Right now, we are seeing an enormous increase in applications, but many are not making it through underwriting.

I'm leaning more toward Victor's assessment that risk-based pricing is going to be a major speed bump. The mini-boom we've seen over the last week was low-hanging fruit (high score, low LTV) or registrations that have little chance of closing. When a 719 score gets a .750 hit at 76% LTV, there isn't a lot of YSP left given the tightness of the coupon stack.

I understand that FHA is an option, but not always. Also, the wholesale Jumbo market remains bleak. So unless we get some relief from risk-based pricing or a major expansion of stack spreads, the boom will be more af a bang if not an outright bust.

This is why credit work is becoming so important.  Word is that the 3 buruea's are scoring more easily on high revolving debt and lates too.  Hopefully this will help.

My borrowers are not moving becuase all the new outlets are saying that the government is going to make rates 4.5%.  Why would they refi now if they could get 4.5% soon?  I'm not saying that we will get to 4.5% and I am doing my best to make by people understand that, but right now, everybody has turned into an economic expert in their own eyes.

Exactly what I told a customer this morning!  The gov't will just muck things up - don't try to time the bottom, refi now!

The other interesting point right now for those waiting to refinance when rates get to 4.50% is that a lot of the talk revolves around the program applying to purchase loans only. If that news hits and the industry responds with an adjustment for refinance loans rates will shot up significantly.  And with the current thin spreads between coupons any flat adjustment would have big rate swings.  At this point no one knows and if the rate makes sense customers need to be locking in and moving forward.  Not to mention we all had the 700 billion bait and switch press conference a few weeks ago to step away from buying mortgage debt, so don't hold your breath waiting on the government to price fix the market. Refinance Now!

Clem:

The other interesting point right now for those waiting to refinance when rates get to 4.50% is that a lot of the talk revolves around the program applying to purchase loans only. If that news hits and the industry responds with an adjustment for refinance loans rates will shot up significantly.  And with the current thin spreads between coupons any flat adjustment would have big rate swings.  At this point no one knows and if the rate makes sense customers need to be locking in and moving forward.  Not to mention we all had the 700 billion bait and switch press conference a few weeks ago to step away from buying mortgage debt, so don't hold your breath waiting on the government to price fix the market. Refinance Now!

Amen!

I'm not to convinced that lower rates will be enough to spark a refi 'boom'. Maybe a 'bang.' It would be interesting to see some stats if anyone can find them but I'd guess that for the last 5 years 80 to 85% of all mortgage originated were either sub prime, Alt A or Option Arm loans. This market share has been virtually erased. Late payments, significantly lower values, pricing hits, rates between 5 to 6% the last five years and tighter ever changing guidelines are depleting the pool of eligible borrowers even further. For these reasons I don't think there is a large enough market to take advantage of lower rates and be considered a boom. 

Mike King:

I'm not to convinced that lower rates will be enough to spark a refi 'boom'. Maybe a 'bang.' It would be interesting to see some stats if anyone can find them but I'd guess that for the last 5 years 80 to 85% of all mortgage originated were either sub prime, Alt A or Option Arm loans. This market share has been virtually erased. Late payments, significantly lower values, pricing hits, rates between 5 to 6% the last five years and tighter ever changing guidelines are depleting the pool of eligible borrowers even further. For these reasons I don't think there is a large enough market to take advantage of lower rates and be considered a boom. 

Agreed.  I would add that those ARMs that many thought would create a boom are not really adjusting up yet either.  This is making refinancing less attractive to customers with them.  They tend to think that they could just refi at any time.  With decreasing property values, many will find that they will be unable to refi or will end up paying MI when they decide to move forward.

I understand the WANT to get the absolute best deal, but not the OBSESSION to get the timing perfect.  They tend to think in terms of what MAY happen, but only in terms of positive outcomes.  Negative consequences don't even play a part in their decision.  I guess if these customers were able to sit in our offices and see how many people give up real and attainable benefits because they THINK rates will get better, they might change their minds.