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Ability to Refinance

Posted on Friday, March 18, 2011

The ability for a borrower to refinance is determined by several factors: currentrates, credit quality, and collateral value being primary. Lenders know that higherfees have a negative impact on refinancing volumes going forward as FHLMC, FNMA and the FHA have all recently increased costs for certain borrowers. Loan Level Price Adjustment changes by Fannie & Freddie, and the increase in FHA's MIP fees,make home purchases more expensive and raise the refinancing bar. But for a verylong time mortgage applications show that over 60% of loans are refinances. Who& why are these borrowers refinancing? On the retail side, lower rates can be foundfor high quality borrowers with pre-existing relationships with the lending institutions.Otherwise, borrower's with lots of equity, government loans because of LTV, borrowerswho paid cash for their home and are now taking money out, and borrowers convertingfrom ARM's to fixed-rate mortgages are refinancing. In addition, lenders report that there are still borrowers out there with higher note rates that can still refiinto a lower rate, those taking advantage in some areas of the $729,750 loan amountwhile it exists, or even borrowers in divorce situations help make up the refinancingpool.Chrisman


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