Amid a steady stream of headlines about turmoil in the U.S. mortgage market propelled by rising defaults of subprime loans, home buyers and owners are fast turning to traditional, long-term mortgages for home financing needs, according to a report released on Wednesday.
Thirty-year fixed-rate mortgages provide certainty and security, features that had been of little concern to many home buyers and owners who tapped initially less expensive adjustable-rate mortgages during the housing boom of recent years to buy houses and refinance mortgages.
Now with the housing market in an extended slowdown, in part because so many adjustable-rate mortgages are in default as teaser interest rates have lapsed and monthly payments have soared, home buyers and owners are taking a second look at long-term, fixed-rate debt and are liking what they see, according to Wharton School Professor Susan Wachter's U.S. Mortgage Payment Index.
Wachter said she found in researching recent home financing trends for the index that Americans have heard the warning bells, a reference to rising defaults of adjustable-rate mortgages, and are increasingly taking on 30-year home loans in a flight to safety.
Many are applying for the loans on their own, but others are being put into them by brokers because lending standards have been tightened in recent months.
I think it's both -- definitely directed, but they're choosing to move as well, Wachter told Reuters during a telephone interview.
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She noted that in January, more than 60 percent of all new mortgages were prime products and that in the first quarter, 89 percent of borrowers with one-year adjustable-rate mortgages refinanced into long-term loans.
Additionally, home buyers and owners are loading up on mortgage insurance, spurred in part because it became tax deductible in January, Wachter said.
Mortgage insurance applications jumped 55 percent in March from February, she noted.
Mortgage holders considering refinancing should act fast because interest rates may rise in the third or fourth quarters, Wachter said.
Refinancing is still out there, she said.
Its availability may decrease later this year if the Federal Reserve raises interest rates in response to inflationary pressures, a move that would further depress housing activity in many markets, Wachter said.
My hope is we hold steady going forward, but there is that potential risk out there, she said.
Home owners and prospective home buyers are correctly sensing higher long-term mortgage interest rates are in the offing, said John Karevoll, an analyst with La Jolla, California-based real estate information service DataQuick Information Systems.
The perception out there is that a year from now, mortgage interest rates will be higher, he said. It's just a question of how much.