The mortgage refinancing boom

With all of the Fed easing before last week, the market for refinancing of mortgages has been booming in the past month. And that was before the latest 0.75% rate cut. The refinancing boom will have several positive effects:

1. Consumers will have more money to spend each month.
2. Existing mortgage-backed securities will be liquidated by early payment of existing mortgages, helping to clarify the value of these securities and to put cash in the hands of investors who then need to find a place to reinvest that money.
3. The mortgage-backed security market will be revitalized due to an influx in "clean" mortgages that are untainted by the subprime scandals.
4. We will likely see a modest reduction in the downwards pressure in the housing market

And all of this is before the upcoming fiscal stimulus bill dramatically raises the ceiling for conforming mortages that Fannie Mae and Freddie Mac can securitize. That is likely to happen by early March. This will help to revitalize the market for homes in the $425,000 to $625,000 range.

How it all plays out remains to be seen, but all is not dark clouds on the horizon.

-- Jack Krupansky