An estimated 1 million homeowners with Federal Housing Administration (FHA)-insured loans could benefit by refinancing at today's low rates – but the government's mortgage insurer doesn't think it will happen.
The last time mortgage rates were nearly this low was in the August-to-September period of 2010, according to a new FHA report. At that time roughly 150,000 applications were pending for FHA refis. Today, the reading is a mere 50,000.
The federal mortgage insurer points out that 1 million borrowers used FHA financing from 2003 through 2009, but with a large chunk of those loans being written the last two years when rates were already low.
In short, these borrowers have had previous opportunities to refinance and haven't done so. Thus, there is no expectation that large numbers of them will refinance today, FHA writes in its report.
The agency noted that there are several reasons why these FHA borrowers do not refinance. But being underwater (due to property value declines) is not a deterrent in a FHA-to-FHA streamline refinancing transaction.
Mortgagors may not realize that there is no home equity test for a FHA streamline refinancing, the agency says.
However, the Department of Housing and Urban Development and FHA are constrained from encouraging borrowers to refinance because most of the loans are pooled into Ginnie Mae MBS. Encouraging faster repays would diminish the value of the MBS and negatively affect investors, HUD says.