Mortgage rates have been on the upswing since early May and as a result, refinance activity has dropped considerably; with that in mind, analysts believe that the refinance share of mortgage activity may reach its lowest level in several decades. However, that is not expected to totally kill off refinancing, and banks whose share of refinancing is dwindling rapidly may ease up on their terms to convince more consumers to “take the plunge” and refinance their mortgage.
Statistics from the Mortgage Bankers Association show that the share of refinance applications out of total mortgage activity have dropped to 63 percent since rates started spiking in early May. Interest rates have increased more than one percentage point to 4.62 percent since so-called “taper talk” surrounding the Federal Reserve’s bond-buying stimulus caused interest rates to rise dramatically.
According to the MBA, refinances may take up only 36 percent of the $1.1 trillion projected earnings from originations in 2014, but some analysts see that estimate as being too generous. Compass Point Research, for one, believes that refinancing will earn $490 billion in calendar 2014. Mortgage refinancing has never taken up less than 50 percent of mortgage activity in the past decade, and has, in actually, been around the 70 percent range for most of the past few years.
As stated above, refinancing is not expected to go away completely, and the government is showing signs of being willing to help consumers refinance, such as its Home Affordable Refinance Program. Still, with refinancing activity greatly slowed due to the spike in rates, several leading financial institutions have laid off or repurposed thousands of employees, and more job cuts may be announced going forward, even as lenders are easing their standards to convince more customers to refinance.