A Refinancing Boom On European Strife

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The troubles of Greece and Europe make for terrifying television indeed, and the horrible effects to real human life over there is difficult to bear. Yet, for many Americans, the effects to mortgage rates have been a Godsend.

A flight to safety over the last week has driven U.S. Treasury demand, leading yields lower. As a result, mortgage rates have reached their lowest point in the history of the Mortgage Bankers Association (MBA) Weekly Application Survey. The MBA is already reporting a response in refinancing activity, which stands to benefit aggressive bankers, while lowering the cost of living for many Americans.

In the week ending May 11, 2011, the MBA's Market Composite Index of mortgage application volume increased 9.2% on a seasonally adjusted basis. Behind the rise was a 13% drive higher in refinancing activity, as mortgage rates dipped into record territory across the spectrum of loan types.

Each loan type marked record territory and saw effective rate decrease, except for FHA sponsored loans, which saw an effective rate rise. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) decreased to 3.96 percent, from 4.01 percent. The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $417,500) decreased to 4.20 percent, from 4.29 percent. The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA decreased to 3.75 percent, from 3.81 percent. The average contract interest rate for 15-year fixed-rate mortgages decreased to 3.26 percent, from 3.29 percent.

Over the last six months, mortgage refinancing has increased by 50% on the Home Affordable Refinance Program (HARP), driven by Fannie Mae (OTCQB:FNMA) and Freddie Mac (OTCQB:FMCC). The program was designed to assist homeowners in refinancing their mortgages even if they owe more money than the home's current value. Something like a third of all refinancing applications have been HARP driven lately. However, over the last week, the MBA reports the HARP share of refinances fell to 28%, from 30%, as conventional refinancing increased 14% on the week versus the 4% increase of HARP driven activity. This is the direct result of the drop in mortgage rates.

The nation's most important mortgage originators in 2011 ranked Wells Fargo (NYSE:WFC), Bank of America (NYSE:BAC), J.P. Morgan Chase (NYSE:JPM), Citigroup (NYSE:C), Ally, PHH Corp. (NYSE:PHH), U.S. Bancorp (NYSE:USB), Quicken, Flagstar Bancorp (NYSE:FBC) and BB&T (NYSE:BBT). Perhaps helped by today's MBA news, the shares of the top four were up between 1% and 2%.

Still, purchase activity, or mortgage applications filed for the purchase of a home, decreased 4.2% on a seasonally adjusted basis last week. While refinancing is booming, the housing market remains sickly, and I just suggested homebuilder shareholders take profits on Tuesday's builder confidence inspired climb higher for stocks including Toll Brothers (NYSE:TOL), Ryland Group (NYSE:RYL) and others.

While it's a shame that the driver of the day's helpful mortgage activity is the direct result of the strife of others overseas, Americans might help themselves now by lowering their cost of living. Considering the economic situation I see developing, it's all the more a good idea.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.