What the mortgage refinance slowdown tells us about future bank health
Those with an eye on the mortgage finance industry may have been watching the weekly releases from the Mortgage Bankers Association (MBA) with increasing alarm. According to data from the past two months, the number of refinance applications has dropped dramatically. They fell 4 percent since the week ending July 18 and show no signs of abating, having plunged by roughly 55 percent since May.
What's happening here? It's a mixture of economics and perception, critics are saying, as interest rate spikes have led to a market shock, which in turn has pushed away many potential buyers from filing applications. Fearful of both being unable to pay off a mortgage in the future, or concerned about taking out a home loan now when rates could improve, today's prospective homeowners don't have the financial security to take the plunge.
The implications for the wider financial industry remain to be seen. Mortgage activities are a source of revenue for some of the top U.S. banks, and in an already volatile investment environment this dried-up well-spring of income could not come at a worse time. However, given the slight lag between home finance and real estate industries, it might be months before lenders have to confess to any issues they may be experiencing.
Ultimately, these results are negative for the U.S. economy. The data could show that households are either up to their gills in debt or unwilling to spend precious resources. At the end of the day, this doesn't bode well for those trying to assess and manage the risk of their portfolios in a tough investment atmosphere.
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