FHA experiences surge in refinance activity

Following the housing market collapse, property values plummeted more than 30 percent in some areas, leaving millions of borrowers upside down on their mortgages.

Following the housing market collapse, property values plummeted more than 30 percent in some areas, leaving millions of borrowers upside down on their mortgages.

This made it very difficult for many households to qualify for conventional refinances, but government initiatives have gone a long way in helping borrowers avoid foreclosure and lower monthly payments.

The Federal Housing Administration assisted countless families in the wake of the real estate bubble burst. Looser credit and other financial standards made qualification possible for many underwater borrowers. In fact, mortgage professionals experienced a 42 percent spike in completed FHA refinances in July, the agency said.

During this month, an estimated 25,750 refinances were closed under the FHA, which was a notable increase from 18,100 in June. The surge was believed to be the result of lenders working through dense backlogs of applicants.

Meanwhile, mortgage records indicate another 97,000 struggling borrowers applied for an FHA refinance in July, which was a slight decline from the previous month. But with mortgage professionals speeding up the process, this could result in even more completed refinance in the coming months.  

Additionally, the FHA recently announced a more streamlined refinance process, which allows borrowers to pay reduced rates on upfront and annual insurance premiums. By doing so, their principal balances and interest rates can be subsequently reduced, making the mortgage more affordable in the long-term.

Further, the relaxed appraisal, income, employment and credit requirements in the past have been waived altogether for certain individuals, depending on the situation. 

Fewer conventional refinances experienced

Although a growing number of households recently jumped at the chance to qualify for FHA refinances, conventional activity fell 3 percent during the week ending August 31. This marked five consecutive weeks of declines, according to a report from the Mortgage Bankers Association.

As a result, refinances accounted for just 79 percent of overall home loan activity, the report said.

This occurred despite a decline in fixed mortgage rates during the period, making the prospect of restructuring a home loan more affordable. Specifically, the rate for a 30-year FRM with a conforming loan balance fell to 3.78 percent, down from 3.8 percent a week earlier, the industry group said. Meanwhile, 30-year FRM jumbo loans edged lower to 4.05 percent, down from 4.06 percent.



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