Mortgage applications are up sharply as homeowners try to take advantage of low 30 year fixed rates. But tighter lending standards means that a fair number will be disappointed.
Moreover, the surge in mortgage applications is for refinances rather than new home purchases. And while refis will indirectly help the economy by increasing consumer discretionary income, the newly low mortgage rates do not yet appear to be stabilizing the housing market.
From the Financial Times:
Applications for home loans more than doubled in the two weeks after the Federal Reserve said it would buy mortgage bonds to help stabilise the market, prompting mortgage rates to fall by more than three-quarters of a percentage point.
With average rates for a 30-year, fixed-rate mortgage now at about 5.2 per cent, growing numbers of borrowers have an incentive to refinance to bring down their mortgage costs.
But tighter underwriting standards for prospective borrowers, combined with funding and staffing difficulties for mortgage originators, are likely to restrict the supply of new mortgages.
“The mortgage industry is collectively unprepared to deal with a cascade of business; staffs were pared to the bone as the market for mortgages shrank over the past year,” analysts at HSH Associates wrote in a note to clients.
Mahesh Swaminathan, mortgage analyst at Credit Suisse, said that as a result, lower rates would not necessarily create a wave of mortgage refinancing on the scale that was seen in 2003, when credit markets were healthy.