Home price appreciation throughout the US has convinced many originators that they will be able to continue to make a good deal of business on home refinances.
CoreLogic revealed this week that home prices rose 10.5% year-over-year in March 2013, indicating that it will increase borrowers’ desire to refinance their homes.
Coupled with the low interest rate environment, home price appreciation gives borrowers the chance to build equity into their homes, said Ryan Nelson, a mortgage loan officer and branch manager for Academy Mortgage in Chandler, Arizona.
Because the house is appraised at a higher value, borrowers’ loan-to-value ratios drop, putting more equity in their home, he said. This can eliminate the need for mortgage insurance, which is typically required for loans with LTV’s greater than 80%, he added. Along with a lower interest rate, this can mean a substantial reduction in monthly payments for most qualified borrowers.
Total refinance activity has been booming all over the US for the last two years, according to a report released yesterday by the Federal Housing Finance Agency. Nearly 5.6 million loans were refinanced during 2012 and January and February of 2013, and roughly 15.7 million since 2009, when the government’s Making Home Affordable Refinance Program (HARP) was created.
HARP was established to help deeply underwater borrowers refinance into lower rates. In April, the government announced it would extend HARP until 2015, signaling interest rates would not be raised either.
“Every market is different,” however, said Kevin Linskey, an originator for Castle & Cooke Mortgage in Las Vegas, Nevada. He believes price appreciation has been due to a shortage in inventory, rather than the “real appreciation” he sees in Arizona.
“We don’t really have a normally functioning market right now,” Linskey said. “I don’t think appreciation is sustainable,” he added.
Originators will have to be careful about what products they are putting borrowers into, he noted, warning to be flexible when any interest rate or legislative changes occur.