There is no question that the mortgage rates for financing a home purchase have changed. Over the last couple of weeks, the home loan rate averages have been rapidly climbing. On May 28th mortgage rates “vaulted catastrophically higher.” The Federal Reserve had a lot to do with the latest increase prior to the huge bump on May 28th, putting out comments noting that the time for the Feds to put the brakes on economy support is very near. The Reserve has been doing this through the purchase of mortgage-backed securities, but they are now considering a cessation of that help very soon. Rate averages on the bellwether 30-year fixed rate average are now above 4.00 percent. The 15-year rate average is also climbing, moving over 3 percent http://www.mortgagenewsdaily.com/reports/mortgage_rates/2013/5/28/426
Finding Leads with Rising Rates
In terms of refinance leads, the rising rates don’t foretell good news. Generally, the higher the rates go in the long-term, the less people will be interested in refinancing. Granted, there will be a wave of panic refinancing, trying to get in at the last second to score a lower rate before all is lost. However, once that wave subsides, a market famine could arrive. Once rates effectively rise above what people currently have to pay, there’s no point in refinancing at all.
The business of obtaining leads for refinancing will follow the same pattern. Referrals will be plenty at first as people get what they’re looking for and tell their friends who may still be on the fence. Unfortunately, as the demand falls off, so will the connections to warm leads through satisfied customers and referrals.
The recent rise just up to 4.00 percent has already dampened a serious amount of mortgage and refinance processing. The activity tracked by the Mortgage Bankers Association saw a drop in mortgage activity by over 8 percent when rates started their first false rise in January 2013. The applications dropped by more than 10 percent.
It’s important for loan officers to understand the bigger play in this activity. The fact is, most buyers in the last 10 years got into their homes as rates dipped below 5 percent. In fact, a typical homeowner was quite capable of finding a mortgage rate below 5.5 percent as far back as 2002. So, if rates go up, there isn’t much room before the benefit of refinancing runs out.
Don’t Bet on Old Favorites
Any expectation that there are still original qualified homeowners out there with high mortgage rates still needing to refinance at these higher rates could be misguided. Most of these folks already refinanced as rates fell down to as low as 3.5 percent, and they took advantage of savings available. So that population isn’t going to be coming back to the lenders anytime soon either.
The ability to farm and harvest new leads as rates go up will depend largely on finding mortgage borrowers who need to convert from riskier loans to fixed ones, from those switching a 30-year package to a 15-year package to pay it off sooner, new government backed programs such as HARP 3.0 and from new buyers looking to get into homes either for the first time or as a subsequent purchase. This obviously means a far lower level of activity when it comes to refinancing transactions per month or per quarter. However, it will likely be the new reality as rate averages rise and remain higher.
A rising economy means a harder time for those who have been making income off of refinancing home loans. While the rest of the financial world will be improving, refinance centric lenders will have to reposition themselves back to traditional mortgage selling again. Leads will still exist, but not near the level they have been. This is just a fact of supply and demand.
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