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Mortgage Rates: Can Homeowners Take Advantage?

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It seems every week an economist declares a housing bottom, and yet the data are mixed, leaving the topic open for debate -- among other economists, the press, passionate homeowners, prospective homeowners and want-to-be ex-homeowners in all manner of financial positions.

And the bull vs. bear debate will go on tomorrow when Freddie Mac (FMCC.OB) releases its latest data on mortgage rates.

Rates have recently fallen to record lows again after a brief spell touching 4% this spring. Forget what's going to happen with home prices for a minute (one of our readers' favorite -- or least favorite depending on how you look at it -- topics). If you already own a home with a mortgage, lower rates are clearly a good thing if you're able to refinance to your advantage. But therein also lies a problem for many.

CreditSesame.com says its data "show homeowners are costing themselves an average of $4,788 a year because they don't own the best loans they're qualified for." According to a spokesperson, "They don't because they're confused [or] afraid of the process."

Sadly, it's more than that. Today, The Wall Street Journal reports that borrowers who enter the process are getting stuck, waiting months for the chance to refinance and take advantage of low rates.

[Click here to find mortgage rates in your area.]

What's happening:

"A surge in demand has come at a time when fewer banks control a larger share of the mortgage market than they did before the financial crisis. Banks also are being more careful about whom they lend money to and how they process loans. It now takes the nation's biggest mortgage lenders an average of more than 70 days to complete a refinance, according to Accenture Credit Services, up from 45 days a year ago." -- WSJ (Read the story here.)

Further, because they are dealing with less competition, some of the bigger players are reportedly raising rates to try to control the jump in volume while adding to profits. (The nation's four largest banks now make up 55% of all loan originations.)

The banks cited in the story said they were responding to the delays.

The majority of mortgage application volume is still refinancing. The refinance share of mortgage activity dipped just slightly to 72.1 percent of total applications last week, the lowest refinance share in a month, according to the Mortgage Bankers Association's Market Composite Index. The four week moving average for its refinance index is up 1.81 percentage points.

Yesterday, Bank of America (BAC) said it was rolling out new efforts to help keep homeowners out of foreclosure thanks to the robo-signing settlement. It will begin mailing 200,000 letters offering certain customers mortgage principal reductions, and eligible borrowers could get as much as $150,000 knocked off the balance of their mortgages.

Here's a bit of food for thought. Homeownership rates fell to 65.4 percent in the first quarter, their lowest level since 1997, according to the U.S. Census Bureau. Bloomberg Businessweek said last week this is a return to normal -- not a new normal, just normal -- a "natural rate for the U.S. economy." In fact, social and economic trends imply the U.S. won't return to the near 70 percent homeownership rate experienced in the bubble, according to the report.

What does that mean for the housing industry? Let us know what you think in the comment section below.