Homeowners who refinanced during the first six months saved $2.3 billion this year due to recent government actions to reduce mortgage rates, according to a new study by Mark Fleming, chief economist for First American CoreLogic. The study found the median individual monthly savings was $120, a 10.5 percent reduction from the median borrower’s previous mortgage payment, and the total benefit to homeowners who refinanced in 2009 will grow to $11.5 billion over the next five years.
More than 1 trillion dollars in U.S. residential mortgage financings occurred from January to June of 2009 stemming from government efforts to reduce mortgage debt burdens, including $790 billion of refinancing. The mortgage industry increased refinance loan production dramatically in the first quarter of 2009 to 74% and 69% in the second quarter, respectively, on total originations of $448 billion (Q1) and $664 billion (Q2).
The savings were a direct result of the Federal Reserve’s actions to reduce mortgage interest rates and the Administration’s Making Home Affordable Refinance program (HARP).
The Federal Reserve’s efforts to support the private mortgage market and reduce mortgage rates began last November when it announced that it would purchase up to $100 billion of debt issued by the housing-related GSEs and up to $500 billion of agency-guaranteed mortgage-backed securities, programs that were expanded substantially and augmented by a program of purchases of Treasury securities in March. Mortgage markets responded and the decline in mortgage rates conforming fixed mortgage rates last spring spurred refinancing as well as providing some support for housing demand. Over the summer, rates have risen to levels that are still below those of a year ago.
Making Home Affordable Refinance program launched on March 4 allows homeowners whose mortgages are held by either Fannie Mae or Freddie Mac to refinance if their existing mortgages were up to 105 percent of their current house value, making it possible for those who were close to or slightly underwater to refinance. The program has since been expanded to help those with mortgages up to 125 percent of current value. To date, Fannie and Freddie have refinanced more than 2.7 million loans.
“The quantitative easing policies of the Federal Reserve and refinance activity made possible by the Home Affordable Refinance Program (HARP) have allowed more than 2 million consumers to reduce their monthly mortgage debt obligations and put more money in their pockets,” said Fleming. “This permanent increase in monthly income is likely to, in part, be used to increase consumption and help to drive growth as the economy rebounds. Additionally, these refinanced loans are likely to be more sustainably affordable debt obligations. The combination of lower payments and fixed-rate terms should also reduce the risk of future foreclosure.”
For a copy of the study, click on the link at the top of the story.