Interesting piece on what’s been fueling the real estate boom from NakedCapitalism.com:
Bloomberg reports that that staple of mortgage funding, the 30 year fixed rate mortgage, has seen its interest rate increase from 3.48% a month ago to 4.16% as of yesterday. By contrast, the highest rate the 30 year mortgage reached in the previous year as of mid-March had been 3.85%.
One analyst, Mark Hanson, sees evidence that the dropoff in refinancings has been impressive:
After 5 years of interest rates being forced incrementally lower each year — and everybody that qualifies refinancing over and over again allowing the banks to originate and earn several points off of each gov’t loan churn — the jig is up for a while at least…..three large private mortgage bankers I follow closely for trends in mortgage finance ALL had mass layoffs last Friday and yesterday to the tune of 25% to 50% of their operations staff (intake, processing, underwriting, document drawing, funding, post-closing). This obviously means that my reports of refi apps being down 65% to 90% in the past 3 weeks are far more accurate than the lagging MBA index, which is likely on its way to print multi-year lows in the next month.
Now refis provided some stimulus, since lower mortgage payments means more money to spend. But the effect is likely not as great as you might think. The big winners are the banks and the other fee extractors. As MBS Guy explains via-e-mail:
The refi market is, in reality, a vampire business. It’s a way for lenders, brokers, lawyers and other hangers-on to extract substantial fees, over and over, from borrowers, while giving a modest benefit in return. I have no doubt that the stimulus effect of lower rates was substantially less than many people expected because of all of the refi fees extracted along the way. If most loans were adjustable rate, the stimulus effect of falling rates on borrowers (rather than mortgage brokers) would have been much greater.