Tuesday, May 10, 2011

Another Refinancing Craze?

Americans are refinancing their homes these days, and I don't know if this is because they want to save themselves from foreclosure or help build up another bubble in the housing market:
Applications for U.S. home mortgages rose last week, helped by refinancing demand as interest rates fell for the third week in a row, an industry group said on Wednesday.
The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity, which includes both refinancing and home purchase demand, rose 4 percent in the week ended April 29.
The MBA's seasonally adjusted index of refinancing applications climbed 6 percent, while the gauge of loan requests for home purchases added 0.3 percent.
It makes sense on the surface--lower interest rates are triggering refinancing--but what does it mean in the long term? Is it really saving people money or are they getting involved in the creation of another housing bubble? Are strapped consumers taking "equity" out of a home that they are under water in (where possible) or are people taking what little equity they still have out of their home in order to compensate for lower wages and under-employment?

I don't think we ever really got a handle on the mortgage industry. I don't think it has been reformed, re-regulated and restructured in such a way as to benefit American homeowners and it could, I suppose, be so badly structure right now that any surge in refinancing might trigger the creation of another mini-bubble.

There are a vast number of homes on the market--adding in foreclosed homes puts the number at the high end of nine million previously owned homes being available for purchase. And, given all of that inventory, which has caused a drastic decrease in property values, why would you go and "reset" everything, given that no one really knows where the market is headed? Can you continually refinance yourself into oblivion if the value of your home doesn't stabilize? 

If I was a homeowner right now (got out a year ago and it wasn't pleasant), I'd think long and hard about any kind of refinancing arrangement. You might save yourself a little money. But you might end up dealing with an unscrupulous new lender that might engage in unethical or nefarious practices. There is a real problem in this country with banks taking away homes that that they cannot prove they own because the deeds and the financing paperwork are not squared away. Why would you wade into this mess and create another opportunity for a lender to take a mortgage (yours) and bundle it with others and then refinance or resell those loans?

Sounds like a recipe for disaster to me. And, for what? Saving a hundred bucks a month or not much more? Is that worth losing a home over?
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