Mortgage Refinance Activity Speculated Not to Last

By Liz Clinger Updated on 6/26/2012

According to some bank analysts, the recent surge of mortgage refinance activity is speculated to drop off in August.

With the Fannie Mae and Freddie Mac HARP program starting to take off when banks implemented the program in March, refinance activity had already started to rise significantly, though the true surge in activity came with the FHA refinance program that allowed homeowners with mortgages before May 31, 2009 to refinance under a less expensive mortgage insurance premium structure than the previous structure in place on June 11, 2012.

Results of this change in the FHA came immediately, due to lenders only needing to obtain case numbers from the FHA when there is an open loan application which caused a boost the week before the change was official. The Mortgage Bankers Association’s refinance index showed an incline of 19% over the week that ended June 8, in result being the highest point of activity since the first part of 2009.  

For the week ending June 15, 2012 the MBA refinance index showed another large boost in government backed loan refinance applications, with an increase of 120%.

With the large banks following suit to include the refinance options in their FHA loan programs, it is speculated the increase in refinance volume will only continue to rise, though it seems clear to most banks that this sudden increase is due to pent-up demand from borrowers who were waiting for the new program or that could not previously refinance due to the costs of the insurance premium.

Analysts from Chase made a statement to this effect, also commenting that the surge expected in July is “likely to be followed by an equally drastic fall-off in August as refi demand is pulled forward. August speeds could well retreat.”