Home refinancing sank to its deepest level since early August despite very low mortgage rates.

The Mortgage Bankers Association reported that mortgage applications for home loan refinancing slipped again last week –the second straight week of decline. The trade group said that its seasonally adjusted index of mortgage applications slid by 8.9%. The index includes both home purchases and refinancing. The monthly average was down 0.8%.

For the week that ended September 10, the association’s seasonally adjusted index of refinancing applications decreased 10.8%. It was the lowest percentage since the week that ended August 6.

Experts said “underwater mortgages” have a hand to play in the decrease. According to Torsten Slok, senior economist at Deutsche Bank in New York, these mortgages are preventing many owners from selling their property or even from qualifying for refinancing. In an underwater mortgage, owners face negative equity, wherein the amount owed on the mortgage is bigger than the value of the home. “Even if mortgage rates got as low as 3 percent these people still would not be able to refinance,” Slok said.

Meanwhile, there are qualified homeowners who find closing costs to be too much to bear. Some of them probably are unemployed at the moment, given the country’s jobless rate of 9.6%. “The housing market right now is an innocent bystander to the weak labor market and it may take years before many of those jobs come back,” he added.

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