WACs Point to Less Churning.(Weighted Average Coupon)(home loans)

With interest rates averaging just about 5.8% for prime credit quality, 30-year, fixed-rate mortgages in late January, refinancing continued to account for about half of the loan origination market.

But that is not expected to last. Housing industry economists say that a combination of gradually rising interest rates and a dwindling supply of homeowners whose existing mortgage exceeds the current market rate will cause refinancing to taper off this year after an unprecedented three-year boom.

The three largest mortgage servicers - Washington Mutual, Wells Fargo and Countrywide - all reported that the weighted average coupon (WAC) in their portfolios fell during the third quarter, reflecting the impact of last year's record breaking refinancing boom. Wells Fargo's average WAC dipped below 6% to 5.98% in the third quarter. Countrywide and WaMu both had WAC's of about 6.1% at that time. Fourth-quarter data, which had not been released as this edition of Mortgage Servicing News went to press, will likely show a continuation of the downward trend.

Data collected by MSN's affiliate, the Quarterly Data Report, show that the trend toward lower WACs has continued. At the end of the third quarter, most of the lenders with the highest WACs, which includes some supbrime firms, reported that their WAC had declined by more than 10% from a year earlier (see related table, page one).

Frank Nothaft, chief economist at Freddie Mac, said he expects refinancing volume to decline by about 60% ...