Monday, March 9, 2015

American Refinancing Boom Seen Fizzling, Bonds Show: Mortgages

 (Bloomberg) -- The great American refinancing boom of 2015 is turning out to be greatly exaggerated.

In January, concern mounted among U.S. mortgage-bond holders that homeowner refinancing was about to soar, decreasing the value of their securities. Their worries were short-lived. Last month, premiums fell on bonds backed by loans unlikely to refinance. That means investors saw less need for protection against the risk borrowers would repay their mortgages early.

The drop in interest rates that helped fuel a January surge in refinancing applications has reversed, with the cost of a 30-year mortgage rising 6 percent over the past three weeks from a 20-month low. That sparked higher demand in the $5.6 trillion market for government-backed mortgage bonds, and refinancing levels are expected to stay low for the foreseeable future.

When rates rise, “the prepayment concern is not all that relevant,” said David Land, a bond manager at St. Paul, Minnesota-based Advantus Capital Management Inc., which oversees about $33 billion.

While the bond market celebrates, it’s bad news for lenders, homeowners and companies hoping for an economic boost from consumers with more cash to spend each month.

Total mortgage production, for purchases and refinancing, will probably total about $1.2 trillion this year, and the same in 2016, Kevin Watters, head of JPMorgan Chase & Co.’s mortgage unit, said last week during the bank’s investor day.
2014 Originations

Last year, mortgage originations tumbled 34 percent to a 13-year low of $1.24 trillion, with refinancings accounting for 42 percent of the total, down from 64 percent in 2013, according to newsletter Inside Mortgage Finance.

With the flurry of activity at the start of this year now passed, lenders will have to focus more on loans for purchase. Refinancing applications, which had soared 84 percent in the final three weeks of January from their 2014 average, according to Mortgage Bankers Association data, have subsequently fallen 30 percent.

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