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Money for Breakfast Fox Business NetworkNovember 14, 2007 7:00 AM - 8:00 AM ALEXIS GLICK, co-anchor: Well, the credit crunch has had a major impact on the housing market. Home buyers are either having trouble getting a mortgage or just shying away. Mortgage applications fell 1.6 percent last week. New figures are being released this morning, as Shibani just talked about. Here to break them down is Bob Moulton, president of American Mortgage Group. Welcome. Mr. BOB MOULTON (President, American Mortgage Group): Thank you for having me. GLICK: All right. Let's talk a little bit about--you and I have talked a little bit during the break here. What exactly are these numbers? What are they measured? Put them in context for us. Mr. MOULTON: Well, the Mortgage Bankers Association started measuring mortgage applications back in March of 1990. That was the base year. And over the last 17 years we saw those numbers peak in May of 2003 when we were in the housing frenzy, and the refinance frenzy. They've trickled off a bit because the transactions aren't there. But right now what's really helping the number of mortgage applications are the refinances. You have a lot of mortgages that were taken out two and three years ago that were adjustable rate mortgages, some 228's, which adjust after two years, some adjust after three years. And homeowners are concerned about what's going to happen in the future so they're putting refinancing applications in now, which is causing the numbers to be higher. GLICK: OK. So tell us the reason here. Are people refinancing right now because they need excess cash, or because rates are coming in slightly from where they were a year ago? What is the uptick in refinancing due to? Mr. MOULTON: What's really driving these refinances right now are the adjustable rates. These homeowners took out an adjustable rate that started at five percent. When they adjust they're going to get seven, eight, nine and 10 percent. Right now rates are still relatively attractive. We're a lot closer to the all-time low, which was four years ago, and we're at about six percent on a 30-year fixed-rate with now points as of today. Homeowners want to get into that fixed-rate mortgage today while it's still available. And they don't want to have to pay the adjusted rate. So a lot of homeowners put applications in to refinance. Some of them are actually putting in applications into a number of financial institutions because of everything that they hear in the media regarding the credit crunch. And they're concerned about qualifying for that particular mortgage. So you have a lot of applications in. What's really going to be interesting is how many of those applications close. GLICK: I was just going to say, 'How many of them close?' Because I saw you mention this statistic here that underwriting guidelines have tightened so much that 60 percent of the people who qualified for loans last year would not qualify this year. That makes me nervous. Mr. MOULTON: Well, last year we had the ninja loan: no income, no asset, no job. That's pretty much not available. We had a stated-income loan which is becoming like a dinosaur as well, because that's not available. So a lot of homeowners that bought their houses with these ninja loans, these stated-income loans, these all day products, they're not around anymore because underwriting guidelines have tightened up so much. So almost one out of two homeowners would not qualify for the loan they took out last year. GLICK: If you had an adjustable-rate mortgage, do you suggest they go refinance right now? Is now the time to do it? Mr. MOULTON: Now's the time to do it. Rates are great, the Fed lowered rates last month. The Fed's meeting again on December 11. Hopefully they'll give us another quarter-point Christmas present right before the holidays that will hopefully affect mortgage rates. But they should start earlier than later. They shouldn't wait until the last minute because planning will always help them in the long run. GLICK: Bob Moulton, thank you so much for joining us. I hope you'll join us again. You really helped us put that in context for us. Mr. MOULTON: My pleasure. GLICK: All right.
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