Mortgage Refinance Applications Soar As Rates Fall
The Mortgage Bankers Association's index of refinance applications posted a record 203.3% increase over the previous week. Additionally, the U.S. Treasury Department is considering a plan to revitalize the U.S. home market by reducing mortgage rates for new home loans.
"There's a lot of pent-up demand out there," said Orawin Velz, associate vice president of economic forecasting at the association. "You have people on the sidelines who have been watching it every week, and when the interest rates drop, they apply."
She said rates decreased last week after the Federal Reserve announced that it would purchase up to $600 billion of debt issued or backed by Fannie Mae (FNM), Freddie Mac (FRE), Ginnie Mae and Federal Home Loan banks.
The news sent interest rates falling, said Mike Schenk, senior economist at the Credit Union National Association.
The rate on a 30-year fixed rate mortgage is 5.09%, compared with 5.82% last week, and 5.93% a year ago, he said. The rates were about 6% between October 2005 and December 2007, peaking at 6.65% in June of 2006. At 5.09%, a consumer could save about $100 per month per $100,000 borrowed compared to the June 2006 rate of 6.65%, said Schenk.
Demand Uptick Mortgage brokers in New York and California are reporting a brisk uptick in refinance applications. Justin Bayle, a loan officer with CenTek Capital Group in Beverly Hills, Calif., said the number of loan applications he has handled has increased about five-fold from early November. "But the number of those we will actually be able to close has yet to be determined," he said.
He said borrowers are seeking to refinance a range of loan types, including adjustable-rate loans that would reset to higher rates in 2009 and 2010, as well as fixed-rate loans that are now possible to refinance at lower rates.
Peter Koppelman, a loan officer at The Manhattan Mortgage Co. in New York, said refinancing activity "got crazy" last week. Some banks recently unveiled conforming loans that were characterized as much larger jumbo loans at higher interest rates six months ago, he said.
For example, certain borrowers can now borrow $625,000 at about 5 5/8%, said Koppelman. Interest rates on a same-size loan were previously at least 6.5%.
Borrowers are increasingly gravitating to fixed-rate loans as banks continue to offer much better rates, he said.
"People are happier with that because they don't have to look at a calendar and say 'Oh my God, what do I have to do in five to seven years?'" he said.
Greg McBride, senior financial analyst at Bankrate.com, said there was little incentive for consumers with adjustable-rate mortgages to refinance while interest rates were at 6.5% because the reset would be low or nothing with Treasury yields at their current low level.
"That dynamic changed a little (with a 5.5%)," he said. "People are asking how much longer do I want to wait when I can lock in on a fixed rate?"
Availability Financial professionals encouraged consumers to call lenders and comparison shop if they are thinking about refinancing. While rates are lower, credit standards remain high.
The pool of qualified candidates is significantly smaller than in the past, said Bayle, due to lenders' tightening credit guidelines and plummeting home values. Buyers who purchased homes as recent as two years ago, with a 10% to 20% down payment, may have little or no remaining equity, making it impossible to refinance, he says.
Bank of America Corp.'s (BAC) mortgage business has seen the volume of refinancing inquiries increase about one-and-a-half to two times from typical levels in the past week and a half, said spokesman Rick Simon.
He said the bank doesn't make subprime loans and is still looking for the same factors it does when underwriting a loan, including good credit and low loan-to-property-value ratio.
Glen Lazovick, director of mortgage lending at the Mid-Atlantic Federal Credit Union in Germantown, Md., said refinancing can make sense if you can recover costs in less than two years.
Borrowers with large loans can save on relatively small interest rate decreases, Lazovick said. Borrowers with small mortgages would need to see rates fall by a larger amount to see meaningful savings.
Homeowners should request a reissue rate on their title insurance, Lazovick said. They'll be asked for a copy of the title insurance policy they received with their deed. This can reduce the cost of obtaining new lender's title insurance.
Also keep in mind that refinancing a loan can be pricey. For example, in New York City, borrowers can expect to pay at least $8,000 on a $1-million loan, for expenses such as title searches and insurance, application fees, and appraisal and legal fees. Koppelman says borrowers should figure out how much cash the refinancing will save each month and then calculate how long they will need to recoup the savings.
"Pick a time period that makes sense to you," said Koppelman.
-By Suzanne Barlyn, Suzanne.Barlyn@Dowjones.com; Kristen McNamara, Kristen.McNamara@Dowjones.com; and Jilian Mincer; jilian.mincer@dowjones.com;
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(END) Dow Jones Newswires
December 03, 2008 16:53 ET (21:53 GMT)
Publié le 03 Décembre 2008 Copyright © 2008 Dowjones
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