From the LA Times:
US. interest rates are at rock-bottom levels, but that’s not helping most Americans with mortgages. And those high-cost loans remain a big drag on the economy, experts say.
Roughly 69% of American homeowners with mortgages at the end of the second quarter had rates of 5% or higher and about 33% of them had rates above 6%, according to detailed mortgage data provided to The Times by Santa Ana research firm CoreLogic.
Meanwhile, the average 30-year fixed-rate mortgage has been below 4% every week but one this year, and the average 15-year fixed-rate mortgage, popular among buyers looking to refinance, has been below 3% since the last week in May, according to Freddie Mac.
Several factors may be keeping homeowners from securing lower mortgage rates, economists said, including battered credit, insufficient income, stricter lending standards and the costs of refinancing.
But a major aftershock from the housing crisis itself also remains a big stumbling block: the significant chunk of homeowners who are underwater and unable to get new loans.
For underwater borrowers — those who owe more than their homes would bring if sold — the CoreLogic data showed that 84% had loans with interest rates above 5%. Half of underwater borrowers had interest rates above 6% at the end of the second quarter.
Economists and policymakers see a big opportunity, arguing that getting borrowers into lower-cost loans would be an effective way of stimulating the economy — freeing up some income for those who are probably struggling the most to pay their mortgages. Refinancing could also help underwater borrowers by allowing them to plow more cash back into their homes and reduce principal.
To that end, the Federal Reserve last week unveiled big new steps to further push down mortgage interest rates and spur the housing market.
The vast majority of borrowers with negative equity, about 84.9%, continued to pay their mortgages in the second quarter, CoreLogic reported last week.
Nevertheless, underwater loans remain an obstinate barrier to economic growth because people who remain stuck in their homes are often unable to pursue new jobs and other opportunities elsewhere. These borrowers are also higher risks for foreclosure.
Helping spur mass refinancing with new government policies would not only help underwater households but also get the economy moving again, economists say.
“It has very strong macroeconomic effects,” said Joseph E. Stiglitz, a Nobel Prize-winning economist and professor at Columbia University. “The irony is the people who need the help the most have not been helped — the people who are underwater.”
Changes this year to the Home Affordable Refinance Program for underwater borrowers with Fannie Mae and Freddie Mac loans have led to a 95% increase in participation in the program through the first half of the year.
Stiglitz is supporting legislation by Sen. Jeff Merkley (D-Ore.) that would expand refinancing to borrowers who have privately owned mortgages.
Other Senate bills also aimed at expanding refinancing opportunities and reducing costs are being sponsored by Sens. Dianne Feinstein (D-Calif.), Barbara Boxer (D-Calif.) and Robert Menendez (D-N.J.).