Last time, we asked Dr. Michael Seiler from The College of William & Mary to explain what impact fewer refinances will have on the market as a whole. This time around, we asked Dr. Anand K. Bhattacharya, professor of Finance Practice at the W.P. Carey School of Business at Arizona State University to explain why refinances declined in the first place and exactly what type of market conditions will bring them back. Below is the ninth installment of our Think Tank series.
You will see somewhat of an increase in ARMs, but I don't know if anybody or everybody who can qualify for a 30-year mortgage can actually go out and get an ARM because ARM borrowers are actually qualified at much higher levels just because of the full index rate within an ARM.
In general, as mortgage rates increase, you should expect refinancing activity to slow down. If you look at the profits of all the major banks that were recently declared, mortgage volumes are definitely coming down, so the decline of refinance loans is fairly consistent with the rising rates environment.