CoreLogic: Majority of Homeowners Not Taking Advantage of Low Mortgage Rates

October 14th, 2012
in econ_news, syndication

Econintersect: CoreLogic states that even with the very low mortgage rate environment, homeowners are not taking advantage of (or prevented from taking advantage of) lower interest rates.

Follow up:

Part of the slow recovery from the Great Recession is due to the housing market.  Giving homeowners access to low mortgage rates would reduce monthly consumer outlays for housing, and theoretically allow spending in other parts of the economy.  The government's Home Affordable Modification Program (HARP) has not been very successful as the above graph illustrates in reducing mortgage interest rates.

To be eligible for HARP:

  • The mortgage must be owned or guaranteed by Freddie Mac or Fannie Mae.
  • The mortgage must have been sold to Fannie Mae or Freddie Mac on or before May 31, 2009.
  • The mortgage cannot have been refinanced under HARP previously unless it is a Fannie Mae loan that was refinanced under HARP from March-May, 2009.
  • The current loan-to-value (LTV) ratio must be greater than 80%.
  • The borrower must be current on the mortgage at the time of the refinance, with a good payment history in the past 12 months.

CoreLogic reported that approximately 2.4 million borrowers are HARP eligible, but have not taken advantage.  In addition, they see an additional 1 million could be eligible if the origination date restriction is lifted.

read the source report

Steven Hansen


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1 comment

  1. Paul Hanly says :

    Remember when all those variable rate mortgage resets were going to cause the next wave of defaults? Did they? Are they still being reset periodically to the new low rates, giving the homeowners automatic reductions in mortgage payments at each reduction?

    In Australia, most owner occupied homes are financed on variable rate mortgages which are reset every time the Central Bank (Reserve Bank of Australia) lowers interest rates. The banks then reset their variable home loan rates by some amount (generally a bit less than the RBA change) and adjust the payments within about 6 weeks, although borrowers can opt to keep payments at the same amount and have faster principal reduction.

    The Australian variable rate home loan has the advantage that in a slowing economy rate cuts are passed automatically to the people most likely to need them. There is an opposite effect when rates are rising (which is when the Central Bank is fighting inflation and wants to stop too much cash chasing too few goods).

    Contrast the two. Many Americans aren't eligible for rate cuts, or have to incur costs to take advantage of them, locking them out of rate cuts, or slowing there flow into the real economy, or at least their flow through to homeowners, one of the most financially stressed groups. This means that spending by households doesn't get an impetus, so GDP and employment don't get the same degree of stimulus.

    Another advantage of the Australian norm is that those mortgagors who suffer reduced hours of work as an economy slows, get reductions in there mortgage payments right (or quite shortly after) the time when they begin to need it, meaning less defaults and renegotiations with banks, less foreclosures and less pressure on home prices at a time of slowing economic activity.

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