Markets & Economy

Interest rate increases may have silver lining

As refinances drop, banks may loosen lending standards

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Though a recent surge in interest rates may dissuade some consumers from buying homes, the development also could have a silver lining for the real estate market: making mortgages available to more people. With the recent spike in interest rates, refinances have plummeted. In the last week of May, shortly after Fed officials hinted that the Fed may scale back its stimulus program later this year, refinance applications dropped to their lowest level since November 2011, the Mortgage Bankers Association (MBA) reported. With the average rate on a 30-year fixed-rate mortgage continuing to push higher, they have trended lower since then. That's chipping away at banks' profits. JPMorgan and Wells Fargo recently reported that their earnings from refinances have dropped significantly in recent months. To make up for the lost revenue, some experts say, banks may extend credit to a larger swath of borrowers, allowing them to originate more mortgages. “Because refi activity is do...