Rate Update and Cash-In Refis

In a relatively light week for data, the Fed’s unexpected moves pushed interest rates higher. On Wednesday, the Fed released the detailed minutes from the January 27th meeting which revealed that several Fed officials favored starting the sale of the Fed’s mortgage-backed securities portfolio “in the near future.” On Thursday, the Fed announced an increase in the discount rate, the emergency rate at which banks borrow money from the Fed. The Fed made clear that this in no way reflected a change in broader monetary policy or its economic outlook. Another blow to the mortgage market occurred when we learned that China fell behind Japan to become the second-biggest holder of US Treasuries. China was a net seller of Treasuries by $34 billion bringing its total holdings down to $755 billion from $790 billion in November. While these unanticipated events applied upward pressure on mortgage rates, the scheduled inflation data bucked the week’s trend with low levels of current inflation, putting no immediate pressure on the Fed to take action. Currently, the 30-Year Fixed sits at 4.750% (4.929% APR) and the 15-Year Fixed is at 4.125% (4.432% APR). This week we will see New and Existing Home Sales figures, Gross Domestic Product, Consumer Confidence and Fed Chief Ben Bernanke is scheduled to speak on Wednesday.

According to Freddie Mac, cash-out transactions comprised 88% of the total refinance loans originated in 2005. This statistic means that nine out of ten refinance borrowers were increasing their loan balances! The purposes for cash-out refinances included home improvement, transfer-of-equity to acquire more real estate, debt consolidation, and one can’t forget about frivolous purchases. Thankfully, that trend of cashing-out home equity has moved in the opposite direction. The report points out that cash-out refinances have retreated to a mere 27% of all refinance activity. In fact, a review of Freddie Mac’s most recent survey will show that one third of home owners put cash into their refinance in 2009, the highest percentage on record. Many home owners are choosing to pay down loan balances in order to qualify under more stringent lending standards, or simply due to a lack of other attractive alternatives. They might also be thinking of the future value of a sub-5 percent mortgage rate for the next 30 years. Regardless of your reasons, the cash-flow savings secured now will undoubtedly result in thousands of dollars of savings for years to come.

Central Coast Lending, Inc.
(805) 771-9870