There was a brief spike in refinance applications from last Thursday to Monday, due to the drop in interest rates after the government took over Fannie Mae and Freddie Mac. On Wednesday, the average rate on 30-year fixed mortgage rates was 6.14%, better then last weeks 6.02%, but still lower then last month´s 6.65%. Pava Leyrer, the president of Heritage National Mortgage in Michigan, said that investors were not happy with the decision made Tuesday by the Federal Reserve, to not reduce a key interest rate. They kept the federal funds rate at the current 2%, even after Lehman Brothers collapsed, a forced sale was incurred with Merrill Lynch, and there were sharp declines with the stock markets. This keeps investors from participating and makes the rates increase.

Last week, refinance applications hit 88%, 52% of which were direct refinances, up 36% from last week. Purchase applications were also up 5%. However, approval rates will still be low, because many appraisals are coming in at or just below the amount of the homes´ existing mortgages. Ritch Workman, co-owner of Workman Mortgage in FL, says that “A lot of applications won’t end up in closing because the value is no longer there,”. He also said that it does not matter if a homeowner has 10-15% equity in a home, because him/her will have to get private mortgage insurance which would eliminate any savings to be gained from a refinance.

According to Standard & Poor´s/Case-Shiller´s U.S. National Home Price Index, home prices dropped 15.4. In many places such as Las Vegas, Los Angeles, and Miami, prices have fallen almost 25%, if not more, which makes refinancing highly unlikely.