As expected, the refi market is heating up. This trend should be no surprise to Southern California homeowners after the Federal Reserve announced the terms of its most recent economic stimulation.
Known as QE3, the Fed’s program of buying up to $40 billion worth of mortgage-backed securities a month was designed to clear bad assets off bank balance sheets and boost housing prices. Mortage rates would be pushed lower, which theoretically, would draw more buyers into the market. More buyers could spell relief for Los Angeles homeowners seeking a short sale attorney.
An LA Times story published on October 3 reported that the rate for 30-year fixed mortgages fell to 3.4% the week before, even lower than the 3.49% rate from the preceding week. Though if the stated purpose of the measure was to attract buyers, things haven’t played out that way. Instead, a spike in refinances is the result.
While applications for home purchases are up just 4%, applications for refinancing were up 20%, according to Mortgage Bankers Association. New terms of the Home Affordable Refinance Program, or HARP, are also having an affect. Loans owned by Fannie Mae and Freddie Mac that were previously rejected due to a high loan-to-value ratios are now being accepted. As long as payments have been on time for the last six months, refinancing is possible.
A refinancing may be a viable option for residents seeking a home loan modification in Orange County or Los Angeles. Credit standards for a refi are generally higher, as are the closing fees. Depending on your local housing market though, a rise in the value of your home may determine which option is more beneficial. An experienced loan modification attorney in Los Angeles or the surrounding counties can help with the decision.
What still needs to be seen is the way the Fed’s efforts affect local home prices. Though mortgage rates are at historic lows and refinancing is being encouraged, new mortgages are difficult to come by.
On September 30, the LA Times reported on the strict lending standards prospective buyers face. In August, the typical buyer rejected by Fannie Mae and Freddie Mac had a 734 FICO score and planned to pay 19% for a down payment. According to the data of Fair Isaac Co., just 1 in 5 consumers has a FICO score high enough to secure a loan from either lender.
The Fed’s plan to buy bad assets may help to ease standards and eventually allow more buyers into the market. According to Doug Duncan, chief economist for Fannie Mae, the decisive action will encourage banks to lend more as, “their fears of costly buybacks of existing loans recede and long-awaited rules on mortgage lending are unveiled by the federal government.”
The best short-term scenario for the Southern California housing market would clearly combine increased refinancing and home buying. Homeowners utilizing a Los Angeles short sale attorney could complete a sale quicker. Higher home prices could benefit those who want to restructure their mortgage with a refinancing or a home loan modification on their Orange County or Los Angeles properties. Oaktree Law can help answer any questions or concerns about how this will affect you.