As the US mortgage rates continue to decline to new record lows,
the refinancing activity for those who are eligible has been quite
robust. Just when borrowers sign the papers for a new mortgage
(particularly in situations when the bank covers the closing fees),
they are ready to refinance again. Some households have done this
more than once this year alone.
|
Source:
Bankrate.com |
You can see the refinancing wave by just looking at the weighted
average life (WAL) of FNMA 30-year securities (Agency MBS). The
shorter the average life, the more refinancing is taking place (if
everybody in the pool refinances a year after getting
their mortgage, WAL would be one year). Here is what WAL looked like
in March for different coupon FNMA bonds.
|
March
20th, 2012 |
And here is what it looks like now. The 3% and the 3.5% coupon FNMA
securities (roughly corresponding to 3.6% - 4.1% mortgage rates) WAL
decreased by some 2 years in a short span of time. Note that the
high coupon securities represent mostly pools of borrowers (who
borrowed at higher rates some years back) that can't refinance
because their mortgages are "under water" (low to negative equity).
And the WAL declines in that part of the curve are barely visible.
|
July
10th, 2012 |
Mortgage applications for refinancing continue to stay strong as
well.
|
Mortgage
Applications for Refinancing - 4-week moving average |
So far all this refinancing has not translated into material
improvements in consumer spending, as savings from reduced mortgage
payments simply help households
further reduce leverage.
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