Churning Slows as Underwriters Tighten Screws.(Hedging)

Byline: Ted Cornwell

It's no secret that getting a mortgage loan is more difficult today than it was a couple of years ago. Also, the panoply of loan products available to borrowers has shrunk as lenders have abandoned some of the gamier loan products that helped to stretch the buying qualifications of borrowers during the housing boom times.

Homebuyers are not the only ones affected. Many borrowers are finding it more difficult to refinance a home loan as well. While that may pose problems on the credit risk side of things (just ask people who are trying to replace an option-ARM with a more stable loan), it may provide an indirect benefit for loan servicers: less portfolio churning.

Data from Freddie Mac seems to bear this out. The refinancing share of new loans has dropped in recent months, despite relatively stable long-term mortgage rates. Just 38% of new conforming loans were for refinancing in June of this year, according to Freddie. Earlier in the year, the refi share had hovered between the mid-40% and mid-50% range.

And economists at Freddie Mac predict the refi share of loan applications will continue to dwindle downward, totaling 35% in the third quarter and 30% in the fourth quarter of this year. Looking further ahead, they anticipate the refi share will remain around the 30% range next year, with a forecast that the average note rate on 30-year, fixed-rate loans will range from 6.7% to 7% next year. Forecasting rate movements even one year into the future is a dicey business, and rates actually slipped a bit in early ...