Stress Tests Highlight Refinance Opportunities

Posted by  on May 21, 2009

Current mortgage rates hover at historic lows as banks endure government stress tests to determine their long term capital requirements. Treasury officials recently assured bank executives that the Federal Reserve will provide any emergency funds required to keep banks in business. However, the drive to remain free from government intervention has compelled many lenders to hunt down more quality home loans for their portfolios. By encouraging more customers to refinance into long-term, fixed rate mortgages, loan officers hope to stave off the need for an outside capital injection.

Lower Selling Prices Mean Lower Mortgage Down Payments

With housing prices declining during a period of low mortgage rates, some banking industry analysts expect to see a new surge of home loans from Americans who were once priced out of the market. Faced with the terrible choice between short selling their properties or razing their construction projects, many new home builders have opted for cutting deals. In cities where recession has hit hardest, some new homes sell for up to 70% less than the asking prices a year ago. Lower sale prices mean lower down payments, allowing borrowers whose savings might not have been enough back then to get them into a new home--and at a lower price and lower mortgage rate too.

Banks Need Quality Borrowers and Offer the Best Mortgage Rates to Get Them

Underwriters love this scenario, since it creates new home loans for their portfolios consisting of low-risk properties that are unlikely to lose much more value. For bank officers concerned about projected unemployment rates above 10% by the end of 2010, locking in stable deals now has become the best way to prepare for a rough road ahead. Some lenders hope to refinance loans before government regulators require them to bundle and sell portfolios to investors. Other banks simply want to facilitate inexpensive sales of foreclosed properties to remove bad home loans from their books. In both cases, consumers with the flexibility to purchase or refinance under current conditions can lock in tremendous bargains compared to deals they would have made a few years ago.


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