Salient to Investors:

Paul Willen at FRB of Boston said if people believe house prices are going up, credit availability will evolve because there is too much money to be made lending to homebuyers.

Freddie Mac said the average rate for a 30-year fixed loan is at 3.93 percent versus 3.35 percent in May and the record low of 3.31 percent in November 2012. Mortgage rates were 6.8 percent in 2006 and more than 10 percent in 1990.

Home prices are 28 percent below the 2006 peak.

Mark Fleming at CoreLogic said availability of credit is tilted closer to the averages seen in the late 1990s based on factors like loan-to-value, debt-to-income and credit scores.  Fleming said getting a new or refinanced mortgage remains frustrating because lenders are making more meticulous demands for evidence of borrowers’ finances.

The Mortgage Bankers Association said rising rates have already quashed refinancing, which has fallen to 68.7 percent of the market from 76 percent at the start of May – lenders will see their refinance business fall to 45 percent of originations in half2 2013 and 35 percent in 2014.

Doug Duncan at Fannie Mae said further rate increases will flatten the wave of refinancing and force lenders to compete more aggressively for homebuyers, and with easing underwriting standards, banks will have to consider layoffs to cut costs and lower margins to make up for lost refinancing revenue.

Guy Cecala at Inside Mortgage Finance said in the last 3 or 4 years lenders were skittish about doing something wrong so only did the safest loans – unless they start being more flexible, volumes will go down. Cecala said underwriting standards are far more restrictive than during the real estate boom, but lenders are becoming more flexible.

Erin Lantz at Zillow Mortgage Marketplace cites a 570 percent increase in the number of lenders offering conforming loan quotes with down payments of 3.5 percent to 5 percent in March 2013 compared with 2 years earlier.

Mahesh Swaminathan and Vikram Rao at Credit Suisse said more buyers are getting low down-payment loans backed by Fannie Mae and Freddie Mac – in May, 20 percent of purchase mortgages in the US were Fannie Mae or Freddie Mac loans requiring private mortgage insurance, versus 9 percent 2 years earlier. FHA and VA remained at 40 percent in May from May 2011.  Swaminathan said as long as jobs growth, sentiment and outlook remain solid then even a 5 percent mortgage rate is not the end of the world.

Jeff Lazerson at Mortgage Grader said even amid rising interest rates, more people are refinancing their mortgages because rising prices have helped them gain equity, which makes loan approval easier.

Lazerson said buyers offering low down payments are locked out of the market in California because appraisals haven’t been keeping pace with price increases and other bidders can offer more reliable financing, and listing agents are not willing to accept buyers with low down payments. Lazerson said it is a sellers’ market and every house has 5 or 10 offers if it’s priced right.

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