Carolyn Said, Chronicle Staff Writer
Friday, October 7, 2011
|Steven Senne / AP
A home with a for sale sign in front, in Newton, Mass. The average rate on the 30-year fixed mortgage fell to 3.94 percent this week, the lowest rate ever. For those who can qualify, it’s an extraordinary opportunity to buy or refinance.
Mortgage rates hit historic lows on Thursday, falling below 4 percent for the first time since Freddie Mac started keeping track in 1971.
The average rate for a 30-year fixed was 3.94 percent for the week ended Thursday, it said. The average 15-year rate was 3.26 percent.
The bad news is that only a small pool of borrowers can qualify to take advantage of those cheap mortgages – and many of them have already done so during the past months of falling rates.
“It’s certainly a historic and psychological barrier to go below 4 percent,” said Guy Cecala of Inside Mortgage Finance. “But I don’t think it will have a huge impact because people are not buying homes for other reasons than the interest rate. We tend to be refinancing the same group of qualified borrowers, not really opening up the market to other people.”
Mitchell Chernock, president of Sky Valley Financial, a mortgage broker in Benicia, put it more bluntly.
“We can’t pay people to buy houses,” he said. “If they don’t have jobs, if they don’t feel good about the economy, they’re not going to buy.”
Lenders’ tough rules
Keith Gumbinger, vice president of mortgage info website HSH Associates, had similar thoughts.
“The price of mortgage money continues to be at fantastic levels, but that’s not the issue,” he said. “Fantastic interest rates are great, but there are many, many borrowers who simply cannot access them.”
That’s because lender requirements for credit and income are tighter than ever. People buying a house need a big down payment; people refinancing a house need a lot of equity.
With unemployment high, consumer confidence in a nose-dive and home values continuing to slump, there simply aren’t many people out there eager to take advantage of cheap mortgage money.
Not only have the lower rates not caused a stampede to buy or refinance, but applications for purchase mortgages and refis are down, according to the Mortgage Bankers Association.
“Potential borrowers largely remained on the sidelines, seemingly unimpressed by the lowest (by any measure) mortgage rates since the 1940s,” said Mike Fratantoni, the association’s vice president of research and economics. “Refinance application volume declined, and purchase volume was little changed.”
Refi applications were down 5.2 percent last week compared with the previous week; home purchase applications were down 0.8 percent, the Mortgage Bankers Association said.
Chernock pointed out that buyers with Federal Housing Administration loans get less benefit from refinancing at lower rates because of a policy change. FHA loans require mortgage insurance. The rate for that was 0.5 percent about 18 months ago; now it is 1.15 percent.
“On a $200,000 loan, you previously paid $1,000 a year in mortgage insurance, now it’s $2,300,” he said. “So effectively you don’t get a payment reduction by refinancing at a lower rate, because you have to pay more for insurance at the same time.”
Rates were at historic lows last year too, averaging 4.27 percent at this time in 2010. That created a brief cottage industry of refis.
“You only have a finite number of people who can refinance,” said Mark Hanson, a mortgage and housing consultant in Menlo Park. “When rates fall, this same group comes back and refinances. Rates have to fall further each time to get them to come back in because it costs money to refinance. Rates would have to fall to 3.5 percent to see a rush of refinancing to exceed the refi boomlet from last year.”
E-mail Carolyn Said at email@example.com.
This article appeared on page D – 1 of the San Francisco Chronicle
Original article posted at http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2011/10/07/BUB11LEFBL.DTL