The Federal Reserve recently released data which shows that American homeowners' net equity holdings in their homes has increased by nearly half a trillion dollars during the last three months of 2012. According to the report, equity has increased by $1.7 trillion since 2011 and is currently around $8.2 trillion which is the highest level since the start of the housing crisis.
For the year 2012 alone, equity increased $1.2 trillion. The data also showed that, due to paying down mortgage balances, refinancing into smaller loans and taking advantage of low mortgage rates through refinancing, there is $1 trillion less owed on homes than in 2008. After several years of facing negative equity, growing home equity is now making refinancing possible. In some cases and depending on the location of the property, homeowners who show increased home values and growing equity may now become sellers just in time for the active home buying season. Some areas may see an increase in cash out refinances occur as the market continues to improve.
According to the most recent survey of wholesale and direct lenders done by FreeRateUpdate.com, conforming 30 year fixed rates remain as low as 3.250%, 15 year fixed mortgage rates are as low as 2.375% and 5/1 adjustable mortgage rates are as low as 2.375%. Low rates are available for borrowers who have maintained a record of good credit and the qualifications needed for approval. FHFA (Federal Housing Finance Agency) reported that during 2012 there was a 600% annual increase in the number of underwater homeowners who refinanced with HARP loans. HARP refinances are available until the end of 2013 for loans that were sold to Fannie Mae or Freddie Mac prior to June 1, 2009. With the enhancements to HARP at the end of 2011, restrictions that were holding back homeowners, as well as, lenders were eliminated, thus, causing the surge in the number of 2012 HARP loans. However, even though equity is increasing at a rapid pace, there are still homeowners who remain underwater and are eligible for HARP 2.0 while it is still available.
Current FHA 30 year fixed mortgage interest rates are as low as 3.250%, FHA 15 year fixed mortgage rates are as low as 3.000% and FHA 5/1 adjustable mortgage rates are as low as 2.250%. FHA guidelines will be changing April 1st and will require slightly higher annual mortgage insurance premiums on all new loans. In addition, a minimum credit score of 620 and a debt to income ratio of 43% is required in order to receive automated approval. While these may seem to be restrictive, it is actually in line with what most lenders already have in place through their own overlays.
FHA still allows borrowers to use housing grants or loans, as well as, approved gifts to help homeowners make the mortgage transaction more affordable. Seller concessions are also often used to offset the higher FHA closing costs (APR) which is due to the upfront mortgage insurance premium and other FHA fees. These new rules will not apply to the FHA streamline refinance program that offers drastically reduced fees for loans that were endorsed prior to June 1, 2009. FHA still wants these homeowners, especially those that continue to be underwater, to refinance to better loans. The FHA streamline program with no cash out does not require an appraisal or any other documentation in order to receive approval, but does require a good mortgage payment history.
Decreasing by .250%, jumbo 5/1 adjustable mortgage rates are now as low as 2.250%. Remaining the same, current jumbo 30 year fixed interest rates are as low as 3.375% and jumbo 15 year fixed mortgage rates are as low as 2.700%. Jumbo loans require that borrowers have excellent credit in order to receive low jumbo rates. The high end property market has continued to see increased activity which should improve even further with the changes coming for FHA jumbo loans effective April 1st when the annual MIP will increase by .05%.
FHA has also proposed a higher down payment of 5% for their jumbo loan product which will also have an impact on the traditional jumbo loan market. For many borrowers, it will be more cost effective to use a regular jumbo mortgage. Competition has increased as more lenders have entered this market which is keep jumbo rates at significantly low levels.
Mortgage backed securities (MBS), which usually fluctuate with economic data, affect mortgage rates which move in the opposite direction. Signs of economic growth should been sending MBS mostly down and rates up, but this is not always the case. A significant measure of economic growth is consumer spending which was reported as high for the month of February. Retail spending increased 1.1% which was the biggest monthly increase since September 2012, according to the Commerce Department. Weekly jobless claims fell again with continued claims dropping to the lowest level since mid 2008. If strong economic growth continues, further improvement in the housing market is likely.
FreeRateUpdate.com researches and reports advertised rates of active lenders within the FreeRateUpdate.com network.
Published: March 20, 2013
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