mortgage

Mortgage rates sink as economy shrinks

Mortgage rates took a dive this week after a report showed the U.S. economy shrank significantly in the first part of the year.

30 year fixed mortgage
30 year fixed rate mortgage – 3 month trend
  • The benchmark 30-year fixed-rate mortgage fell to 4.28 percent from 4.33 percent the previous week, according to the Bankrate.com national survey of large lenders. One year ago, that rate stood at 4.61 percent. Four weeks ago, it was 4.25 percent. The mortgages in this week's survey had an average total of 0.31 discount and origination points.
  • The benchmark 15-year fixed-rate mortgage fell to 3.39 percent from 3.44 percent last week.
  • The benchmark 5/1 adjustable-rate mortgage fell to 3.33 from 3.37 percent last week.
  • The benchmark 30-year fixed-rate jumbo fell to 4.31 percent from 4.38 percent.

Weekly national mortgage survey

Results of Bankrate.com's June 25, 2014, weekly national survey of large lenders and the effect on monthly payments for a $165,000 loan:
30-year fixed15-year fixed5-year ARM
This week's rate:4.283.393.33
Change from last week:-0.05-0.05-0.04
Monthly payment:$814.60$1,170.66$725.35
Change from last week:-$4.85-$4.04-$3.65

Weak economy equals lower rates

A revised estimate of the first-quarter gross domestic product shows the economy contracted at a 2.9 percent annual rate in the first three months of the year, the worst performance since the end of the recession. The Commerce Department released the revised number on Wednesday.

For investors, the report can be seen as a sign that maybe the economy isn't doing as well as they had thought, even though the labor market seems to have improved. And that's good for mortgage rates.

When investors are anxious about the economy, they tend to park their money in safer investments, such as U.S. Treasury and mortgage bonds

"Wall Street may be doing well, but I don't really see the rest of the economy going well, not when I talk to people like landscapers and plumbers," says Bob Moulton, president of Americana Mortgage Group in Manhasset, New York.

Not enough business for lenders, more competitive rates

Another factor that has contributed to rates staying low is that lenders have become more competitive as they face a significant reduction in the volume of refinance applications, says Derek Egeberg, a branch manager at Academy Mortgage in Yuma, Arizona.

Refinance applications, which accounted for more than 80 percent of the mortgage activity in early 2013, are now about 52 percent of total applications, according to the Mortgage Bankers Association.

Are some refinancers missing a chance?

Lenders expected refinance activity to drop last year when rates rose from their record lows, as many homeowners had already refinanced their mortgages at the lowest rate possible.

But a large group of borrowers has ignored the opportunity to reduce monthly mortgage payments simply because they are unaware of where rates stand or because they think they won't qualify, mortgage experts say.

FHFA will encourage refinancers

The Federal Housing Finance Agency announced new efforts to reach out to consumers who could benefit from refinancing under the government's Home Affordable Refinance Program. The program, known as HARP, allows homeowners to refinance even if they owe more than what their homes are worth.

"I'm sure there's a wide range of people that don't know about HARP yet," Egeberg says. Nationwide, nearly 600,000 homeowners who meet the criteria to refinance through HARP have not done so yet, FHFA says.

You can't win if you don't play

Many borrowers are simply discouraged about the process, Moulton says.

"On paper it looks like a lot of people qualify, but in reality, once they start going through underwriting, not everyone qualifies," Moulton says.

But the only way to find out whether you qualify is by applying.

"Some people self-diagnose themselves and think they can't get a mortgage," he adds. "It's like going to the doctor. You have to go to find out what you have. You may think you have Crohn's disease, but you might just have a stomachache."

Requirements for a HARP refi

To be eligible for HARP, borrowers must meet the following criteria:

  • Loan must be owned or guaranteed by Fannie Mae or Freddie Mac.
  • Mortgage must have been taken out on or before May 31, 2009.
  • Must owe more than 80 percent of the value of the home.
  • Must be current on mortgage payments with no late payments in the past six months and no more than one late payment in the past year.

The states with the highest number of eligible borrowers are Florida, Ohio, Michigan, Georgia and Illinois.

"We know that there are hundreds of thousands of borrowers who can still benefit from HARP and are essentially leaving money on the table by not taking advantage of the program," says FHFA director Mel Watt.

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Claes Bell

Mortgage rates in Los Angeles

See this week's average rates for the 30-year fixed-rate mortgage, 15-year fixed-rate mortgage, 5/1 ARM and 30-year jumbo mortgage in Los Angeles.  ... Read more

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