Refinancing Boom Fuels Mortgages to Postcrisis Record

 | Jan 24, 2020

The mortgage market in 2019 had its best year since the height of the precrisis boom, the latest sign that housing is firming up after showing signs of weakness early last year.

Lenders extended $2.4 trillion in home loans last year, the most since 2006, according to industry research group Inside Mortgage Finance. That was also a 46% increase from 2018.

Robust mortgage lending is generally a good sign for housing, which has seen a rebound in price growth and home sales after a period of declining gains. A refinancing frenzy, induced by last year’s trio of interest-rate cuts, fueled the mortgage making and helped steady the industry. The refinancing boom also bodes well for the broader economy, since homeowners saving on their monthly mortgage payments are likely to spend more on goods and services.

“When a large and cyclical part of the economy—housing—is starting to improve, it’s a good sign for the economy at large,” said Sam Khater, chief economist of mortgage-finance giant Freddie Mac.

The Mortgage Bankers Association estimates that refinancings made up 38% of mortgage originations last year.

Kristen Devlin and her husband decided to refinance their south-central Pennsylvania home last fall while trying to pay down a pile of medical bills.

Their rate dropped from 6.25% to 4.99%, cutting their monthly payment. The couple managed to pay down their medical bills and chose to keep paying their prerefinancing payment of $1,250 for their three-bedroom, three-bathroom house. The move will shave six years off their mortgage term.

“I was very pleased to save money and proud of successfully adulting,” Mrs. Devlin said.

In Philadelphia, Annie Heckenberger’s older brother told her it would be smart to refinance the house she bought about a year earlier. His advice helped her lock in a new rate of 3.88%, more than a percentage point lower than her original one.

“It was more paperwork than I anticipated but worth it in savings,” Ms. Heckenberger said.

The average rate on the 30-year fixed-rate mortgage, the most popular home loan in the U.S., dropped to 3.74% at the end of 2019, down from 4.55% a year earlier. Freddie Mac said Thursday that the average rate is now around 3.6%, its lowest level in more than three months.

Mortgage making accelerated at the end of the year. Last year’s fourth-quarter totals were the biggest quarter since the third quarter of 2005.

December sales of existing homes jumped nearly 11% from the year before, according to the National Association of Realtors. The NAR said, though, that the year-earlier period had been a particularly weak month for sales in part because of buyers’ uncertainty around the federal government shutdown.

But the uptick in mortgage lending doesn’t mean buyers will have an easy time this spring. Major barriers including a lack of housing supply and relatively tight bank-lending standards are pushing homeownership out of reach for many Americans.

Home prices continue to rise faster than incomes, fueling concerns that affordability will remain an issue for buyers, especially those looking to buy for the first time. And the tight supply that has choked popular coastal markets has started to seep into other cities like Boise and Philadelphia that have traditionally been considered more affordable.

Low rates aren’t always entirely good for those first-time buyers. Low rates can also inflate home prices, since borrowers can afford bigger mortgages and might bid more for homes than they otherwise would.

It isn’t clear how long the mortgage boom will last. Refinancings are expected to decline through 2021, dragging down overall mortgage volume, according to estimates from the Mortgage Bankers Association.

Still, an expectation that interest rates will hold steady or even keep falling is a good sign for mortgage lending in 2020, analysts said. Some mortgage brokers said last year’s boom is extending into the new year.

“It’s very likely that the first quarter or first half of 2020 will be bigger than the first half of 2019,” said Guy Cecala, chief executive of Inside Mortgage Finance. “People are encouraged by lower rates.”

Tim Lindsey, an originating branch manager at CrossCountry Mortgage in Greenwood Village, Colo., said the number of mortgages he processed grew more than 25% last year. Mr. Lindsey said he hasn’t had a day off since New Year’s Day.

“There was an incredibly large amount of origination from previous years,” Mr. Lindsey said. “Everyone I know had their best year ever.”

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Reserve Funds: Six Tips to Improve Your HOA’s Returns

In a 2018 HOA budget survey, 72% of board members indicated that they weren’t confident in the returns they were getting on their reserve funds and/or operating funds. To help, we’ve outlined six ways to improve your returns with the guidance of your HOA management company. Read the full article and download a complimentary guide here > 

1. Only invest in money market accounts and CDs

Your responsibility as a fiduciary is to protect the assets of your association. That means only investing in FDIC-insured money market accounts and CDs and avoiding risky investment vehicles like mutual funds, bonds and stocks.

2. Trust HOA professionals for investment advice

Look to your California community management company and financial services provider to help your board make sound investing decisions. Some boards research investment information themselves via the internet or financial publications, which is time that may be better spent creating better HOA policies.

3. Learn HOA investment fundamentals

Board members should have a basic understanding of HOA financials and state legislation when it comes to managing reserve funds.

For instance, in California, the board must review the current reserve revenues and expenses on a quarterly basis.

4. Work with an HOA-specific financial services company

Work with an HOA financial services company that can help you get the most out of your reserve funds. They should have a large portfolio and existing relationships with banks in order to obtain competitive rates on your behalf.

By utilizing FirstService Financial, FirstService Residential clients typically earn rates that are 4 to 5 times higher than the national average.   In one case, FirstService Financial partnered with a Dana Point association to increase their annual interest by more than $27,000 by leveraging existing bank relationships and evaluating the association’s current investments.

5. Review HOA investments regularly

Reviewing your reserve fund investments on a regular basis is important. Banks often offer teaser rates to customers, which will go away over time. Review your portfolio quarterly to make sure rates don’t change.

6. Create an Investment Policy

Last but not least, create an HOA Investment Policy. Karla Chung, vice president of FirstService Financial said,