| Rate cut sparks rush to refinance mortgages
This is a great time for customers to achieve homeownership in a way that is sustainable for the long term." West Des Moines-based Wells Fargo Home Mortgage is part of Wells Fargo & Co., the nation's largest mortgage lender and the largest private employer in the Des Moines area.
In general, a mortgage is deemed "refinanceable" if it is 0.40 percentage point above current average mortgage rates. And the recent drops in mortgage rates could lead to the refinancing of as many as 7 million mortgages, or more than 70 percent of U.S. mortgages, according to estimates by Tony Crescenzi, a fixed-income analyst at Miller Tabak. David Motley, president of Fort Worth, Texas-based Colonial National Mortgage, which originates loans in all 50 states, is expecting an even larger applications surge this week and beyond.
More Risk for Fannie, Freddie?
Currently, FHA can't guarantee mortgages higher than $367,000. The plan, as outlined by Speaker Pelosi, also expands the role of FHA in assisting homeowners in trouble. In addition to raising the loan limits for FHA, Congress will permit more borrowers facing defaults to refinance through the FHA, and increase funding for housing counseling to $500 million to help home buyers who fall behind on their mortgage. Raising the loan limits should allow a larger pool of borrowers to qualify for lower-cost mortgages or to refinance existing mortgages, something that has been difficult to do since mortgage lenders pulled back from nonconforming loans. "This, along with the fact that interest rates have dropped, will give a big kick to the demand side of the housing market," said Nariman Behravesh, chief economist at Global Insight, an economic consulting firm in Lexington, Mass.
Lenders' pitches aiming higher
Despite the mortgage meltdown, the blizzard of advertising for home loans continues.
With the subprime market in tatters in the wake of record defaults and foreclosures, fewer pitches scream "Bad credit? No problem!" Instead, lenders struggling to remain profitable are targeting people who have good credit and plenty of home equity.
With fewer homes being sold -- and, therefore, fewer loans taken out to finance purchases -- mortgage firms that have survived the subprime shakeout are focusing their marketing on persuading homeowners to refinance.
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