A recent survey by the Mortgage Bankers Association (MBA) reports mortgage refinance applications in California ran 13 percent higher from May to April. Furthermore, the number of people refinancing their homes in May 2012 increased 89 percent compared to the same period last year. The Southern California and Bay Area have experienced more vibrant mortgage refinancing activities than most regions of the U.S.
A combination of low mortgage interest rates, rising homes values, and more equity has helped many borrowers meet the basic qualifications required to refinance their homes. For the week ending June 15, 2012, MBA’s Refinance Index comprised 81 percent of total mortgage applications.
Higher Home Values
Rising home values have become a major factor behind the onslaught of mortgage refinancing in Southern California and the Bay Area. San Diego-based DataQuick, a real estate data firm, reports median home prices for the Bay Area reached a 22-month high in May 2012. Single-family homes and condominiums in the nine-county Bay Area increased 2.6 percent to a median home sales price of $400,000 compared to April. On an annual basis, prices have increased 7.5 percent.
Home sales in the Bay Area rose 15 percent from April through May – a 26 percent increase compared to May 2011 and the largest monthly increase in sales since 2006. According to DataQuick, about 39 percent of homes sold for more than $500,000. This represents the highest number of homes sold at that price point since August 2010.
Contra Costa County realized the biggest increase in home prices with a 16 percent gain to $295,000. Median home prices in Santa Clara County and San Francisco counties rose 6.2 percent, with prices of $529,000 and $701,000, according to DataQuick. The median home price in Marin County declined 2 percent.
In Southland, homes sale increased almost 21 percent over May 2011; most of the activity centered on homes exceeding $300,000. The median home price for the six counties in the region increased to $295,000 the highest price since May 2010. This represents 1.7 percent increase compared to April ($290,000) and 5.4 percent higher ($280,000) than May 2011. About 70% of sales occurred in San Diego, Orange, Los Angeles and Ventura counties.
A sobering note, median home values remain 42 percent off the peak value established in July 2007.
Interest Rates Making New Lows
As interest rates continue to decline, people qualify for mortgage refinance at terms unavailable one year or even several months ago. Andrew Soss, a San Jose county mortgage broker, said he has refinanced people with “homes worth more” and “more home equity.” Soss has helped some clients refinance multiple times within the past 12 months, as interest rates have continued to plunge.
Currently, MBA reports the 30-year fixed-rate mortgage has a national average of 3.66 percent, down from 3.71 percent last week. The interest rate for the 30-year fixed-rate product, the most preferred mortgage among people refinancing their loans, has declined nearly one full point from a high of 4.5 percent 12 months ago.
Distressed Sales Down
A significant drop in foreclosure activities in the Bay Area has contributed to the appreciation in median home prices. Filings of the initial default notice, which represents the first step in the foreclosure process for borrowers who have delinquent mortgage payments of 90 days or more, have declined 16 percent in April compared to March.
From April 2011 to through April 2012, filings have decreased 23 percent. Compared to March 2009, the peak of foreclosure filings in California, the number of foreclosure filings dropped almost 70 percent, said foreclosure-tracking firm Foreclosure Radar.
Foreclosure and short sales in Southern California comprise about 44.8 percent of total sales (May 2012), but have reached the lowest point since March 2008, when distressed sales made of 44.4 percent of transactions. The percentage of distressed property sales in the Bay Area accounts for 43.8 percent transactions. With foreclosure sales at 21.8 percent of the market, it represents the lowest level of foreclosure sales since January 2008.
This changing dynamics of distressed properties— comprising a small percentage of total transactions, has released the drag on home values and created more equity for homeowners.
Government Program Help
Foreclosure Radar also credits lenders with taking advantage of government foreclosure programs such as the Federal Housing Agency (FHA) FHA- streamlined refinance program and Home Affordable Refinance Program (HARP) to and assist financially ailing homeowners work out a plan to keep people in their homes.
The Keep Your Home California program has funds for over $772 million to apply toward for principal reductions for eligible homeowners, including borrowers with loans guaranteed by Freddie Mac and Fannie Mae.
The $26 billion dollar mortgage settlement, which netted California a share of around $12 billion, requires lenders to put in-house teams in place to work with homeowners to find other options other than foreclosure. Lenders must provide staff with the tools and resources to work out reasonable solutions for troubled borrowers.
Mortgage Refinancing Experiences Vary
Refinancing experience seems to vary even within the same area. For example, according to Cathy Warshawsky, a mortgage broker representing San Jose’s Bay Area Loan, appraisals lag behind the increase in home values. She has “more appraisals that are just slightly under what we need." Conversely, Andrew Soss, who also services the San Jose area, reports two of his refinancing their homes benefited from appraisals coming in at higher values.
Major Appraisal owner Jeff Zumbo state he has seen a “sharp uptick” in appraisal orders for the Westside of LA. Mortgage broker Jeff Lazerson of Laguna Niguel states he has written 50 applications for new mortgages in June.
Southern California and Bay Area homeowners who plan to refinance their mortgages need to evaluate their circumstances, including the period they intend remain in the home and closing costs, to ascertain if a mortgage refinance yield any financial benefits. Use Mortgage Refinance’s mortgage calculator to run different refinancing scenarios.