The major banks have added significant profits to their bottom lines due to a surge in mortgage refinance completions in 2012. This is in great contrast to activity level seen after the Great Recession, which started in June 2007. Mortgage lenders were completing very few mortgage refinances because unemployment, high consumer debt, and falling property values dominated the housing market, which made it difficult for homeowners to qualify for refinancing.
2012 – A Good Year for Refinancing
Intervention in the housing market, such as the Federal Reserve’s program that resulted in the purchase of billions of dollars in mortgage bonds, pushed interest rates down to records levels.
Millions of homeowners took advantage of the environment. Some borrowers refinanced their home mortgages two or three times. According to the Mortgage Bankers Association (MBA), the volume of mortgage refinance completions soared 71% as of November 2012 compared to the same period in 2011.
Refinancing Expectations for 2013
The Mortgage Bankers Association is a national organization that represents the interest of the real estate finance industry. The MBA monitors and tracks trends in mortgage originations and mortgage refinancing. The association predicts that the enthusiasm for mortgage refinancing will drop off significantly in 2013. Following are some of the organization’s expectations for the coming months:
- Mortgage refinances comprised 71% of all mortgage applications in 2012 – MBA anticipates a decline to 58% this year and 34% in 2014
- Refinance volume totaled $1.2 trillion in 2012; it is expected to drop to $818 billion in 2013, and $358 billion in 2014
- Mortgages to buy existing or new homes totaled $503 billion in 2012; will increase to $592 in 2013 and $703 billion in 2014
Not everyone in the mortgage lending industry shares MBA’s assessment of the mortgage market and the volume of refinancing for the immediate future.
Bank of America’s CEO Brian Moynihan was quoted as saying that the institution intends to increase its share of home mortgages-some question the wisdom of this intention.. The lender moved away from the mortgage market after suffered substantial losses from its portfolio of bad loans inherited after buying subprime lender Countrywide Financial in 2008. About 84% of Bank of America’s mortgages are refinances.
Mortgage lenders like Wells Fargo and JP Mortgage Chase experience strong earnings in Q4—contribute mainly to the mortgage refinancing boom. Wells Fargo completed $125 billion in mortgages during that period—up 4% from the same quarter in 2011, but 10% decline from the volume of business completed in Q3 2012.
JP Morgan Chase CEO announced that he expected some inconsistency in the home mortgage segment over the several quarters.
Refinance Now Before Rates Increase
Many economists believe that mortgage rates will remain low through the first half of 2013. The Fed announced late last year that it would continue its bond buying program to support the growth of the U.S. economy.
Although the Fed intends to maintain it bond buying program in 2013, it probably won’t push interest rates much lower. This means the gush of mortgage refinancing seen last year is unlikely to continue in 2013.
This makes it a good time to complete a mortgage refinance of your home if you have not already taken advantage of the historic low mortgage rates. Acting now will keep you from regretting later that you did not take advantage of opportunity to refinance while rates are still low.
While the Fed has promised to buy more mortgage bonds, interest rates may not fall much farther, which could certainly slow the boom in refinancing that has helped drive earnings at the nation's biggest banks.