Opportunity Knocking for Mortgage Refinance One Last Time: Or Miss the Chance of a Lifetime

by Paul Anastos - President of Mortgage Master Inc.
Monday, August 06, 2012

Fearing the onset of inflation from the surging US economy, early the next year the US Federal Reserve, then led by Chairman Alan Greenspan, initiated a series of moves that doubled short term interest rates. The end result of the Fed's actions and a significant decline of Japanese participation in the US bond markets was a bond market panic that ultimately pushed US 30 year mortgage rates to near 9.375% by November. While rates would begin a slow downward trend from that November 1994 peak, it would be a full four years before rates once again reclaimed the 6.75% level.

Opportunity Now: The Lowest Mortgage Rates of Our Lifetime

Mortgage rates of virtually all types and durations are at, or near, their lowest levels in history. According to online real estate information site Zillow, the 30 year fixed-rate mortgage currently has an interest rate near 3.5%, while the 15 year fixed-rate mortgage has a rate less than 2.5%, each for the most highly qualified borrowers. While the rates are lower than ever, experts are warning in 2012, much like 1993, that the low rates will not last forever.

But this time the warning carries with it an even more serious consequence. According to a 2011 paper by investment firm Merrill Lynch, interest rates in the US are likely to begin an upward trend that will not be abated for decades to come. The reason - the growing gap between US GDP and US debt. The paper contends that the impact of policy options to avoid such a scenario is limited. As the paper puts it, "Regardless of what monetary policy the Federal Reserve pursues, it is unlikely to reverse the negative long-term impact on growth arising from higher debt and deficits, nor the upward pressure on interest rates."

When will mortgage rates begin to rise?

Some market prognosticators, including the Financial Forecast Center, LLC, a private economic forecasting firm in Houston, Texas, believe that rates available on mortgage loans will begin to rise this summer. Moreover, the Mortgage Bankers' Association forecast of mortgage rates released in late May2012 indicates that their expectation is for mortgage rates to begin to rise almost immediately. I do not share their timeline.

Recent economic weakness in the US and the fiscal and monetary crisis plaguing Europe will, in my view, delay the upward trend for several months. Yet, the US presidential election campaign and the actions of Congress, both before and after the US election, will refocus market attention on the inherent imbalances in the US economy. Consequently, it is reasonable to expect mortgage rates to begin to rise within the next 12 months.

The Right Place and the Right Time

As stormy as the last few years have been for the housing market, there is a silver lining. Millions of Americans have the opportunity to refinance, perhaps for the last time, at historically low interest rates. The decision for a consumer should be based on their personal economic situation currently rather than that of the US as a whole over time. If a consumer can lower their rate, reduce their mortgage term or improve cash flow today, then the potential that rates might move still lower in the short-term, or may move higher in the long-term, should not factor in the decision-making process.

Moreover, two government programs exist right now that will help facilitate refinancing for borrowers that may owe more than their homes are currently worth. The Home Affordable Refinance Program (HARP) and the FHA Streamline Refinance program have been modified to enable borrowers whose loans are insured by the federal government to refinance despite being "underwater" on their mortgages.

The basic requirements for each program are as follows:

HARP

• Your mortgage must have been sold to Fannie Mae or Freddie Mac before June 1, 2009.
• You must be current on the mortgage and have no late payments in the last six months. A late payment is defined as one that's more than 30 days overdue.
• You must not have more than one late payment in the past 12 months.
• This must be your first refinance through HARP. If you have refinanced under an earlier version of HARP, then you do not qualify.

FHA Streamline Refinance

• You must have an FHA single-family home mortgage loan.
• Your current loan was endorsed (accepted) by the FHA on or before May 31, 2009.
• Your payments must be current on your existing loan (no late payments for 12 months).

Between the two programs, estimates suggest that 8.4 million homeowners could benefit. The potential savings from the FHA Streamline Refinance program alone are $10.2 billion for those homeowners taking advantage of fee savings that began on June 11.

Now is the right time and place for all American homeowners to determine if a refinance is possible and advantageous for them. At this point in history, it is not a question of how low mortgage rates will go, but rather how long mortgage rates will remain low. Homeowners should contact a mortgage professional soon because the opportunity that is knocking may never call again.

Paul Anastos is the President of Mortgage Master, Inc., which was founded in 1988 by Leif Thomsen. Today, Mortgage Master is one of the Country's largest privately owned mortgage companies, consistently lending over $5 billion each year. Headquartered in Walpole, MA, Mortgage Master employs more than 550 employees nationwide, with approximately 250 loan experts providing loans and services in approximately 22 states and the District of Columbia. Paul Anastos can be reached at panastos@mortgagemasterinc.com or for more information on Mortgage Master please visit http://www.mortgagemasterinc.com.

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