Text size:

Cashing in on lower interest rates

Lenders field more calls for refinancing

BY ELLEN YAN | ellen.yan@newsday.com

December 4, 2008

On an average day, Gregory Frank's Woodbury mortgage brokerage would get 20 new inquiries, but lately phones and e-mails have been tied up with about 100 new inquiries a day.

Yesterday, he reversed an interest rate lock, from 6.5 percent to 6 1/8 percent, when a client set to close Friday on a $1.2-million loan asked him to renegotiate with the bank.

"My loan officers are very active now, writing new deals and pricing out new deals," said Frank, president of Blackstone Mortgage Corp. "We're definitely feeling the heartbeat."

It's been a Thanksgiving to remember for many brokers and lenders as a cornucopia of calls and loans has spilled open. The federal government said last week it would start buying up to $600 billion in bad loans and mortgage-backed securities. That caused home-loan interest rates to fall. They were hovering around 5.5 percent yesterday for 30-year fixed-rate mortgages. The drop, in turn, led to borrowers' calling about refinancing, homeowners' trying to turn their adjustable rates into fixed ones, house hunters' committing to buying and others' asking to be notified if rates dropped more.

Home loan applications last week doubled despite the shortened workweek, the Mortgage Bankers Association said yesterday. Refinancing last week accounted for 69.1 percent of all mortgage activity, up from 49.3 percent the week before, the trade group said, while home purchase loans increased 38 percent.

That report backed claims from lenders of banner times. The day after the federal announcement, a top-20 home mortgage lender, Ohio-based AmTrust Bank, said in an e-mail that rates had been locked on $1.5 billion in mortgages for the day, "historic levels" for the company. In its e-mail to mortgage brokers before the holiday, Wells Fargo said it had a "remarkable day" with "huge activity."

Borrowers learned a lesson when they missed locking onto rates that went down briefly in September after the federal government took over mortgage giants Fannie Mae and Freddie Mac, said Orawin Velz, the trade group's associate vice president of economic forecasting. With the federal government's latest move, he said, "many of those on the sidelines decided to quickly jump in and take advantage of lower rates before they began to rebound."

At a Westbury-based mortgage banker, Financial Equities, there's been a 30 percent to 40 percent jump in calls from stable borrowers who carry a 6.5 percent or higher interest rate and now want the current rate of 5.5 percent and lower.

"Over the last year, maybe 20 percent of my business was refinancing, now today it's probably closer to 40 to 50 percent," said company president Walter Stashin.

But he said house hunters have not inundated phones lines and probably won't until early next year, when federal loan purchases free up cash for lenders and the impact trickles down to consumers.

For one thing, Stashin said, the National Bureau of Economic Research on Monday confirmed that the country is in a recession, and that countered optimism over the federal government's loan buybacks. Also, he said, standards for federally backed mortgages, which is mostly what's available now, have not eased much, with fully documented loans required for the most part. On top of that, many house hunters in high-cost places such as Long Island need jumbo loans, which are more than $417,000, but these loans carry higher interest rates of 7 percent and are harder to get, he said.

"We have quite a bit of pre-approvals," Stashin said. "But have people found a home yet? No. People don't know if it's the bottom yet as far as the housing market, and with the way the economy's going, people are talking recession."

TO REFINANCE OR NOT?

PROS

Near-historic low rates will reduce amount owed monthly and in the long run.

Refinancing during a recession frees up cash from the house in case of emergencies.

Even if rates drop by 0.25 percent to 0.375 percent later on, waiting a long time for lower interest rates can end up in lost savings.

Some banks have been experiencing delayed turnaround times in signing contracts to lock in rates, so if the rates fall further, the delays could be longer.

CONS

Interest rates could fall