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Sunday, December 28, 2008
Mortgage lenders see uptick in applications as owners wake up to low interest rates
By Richard Metcalf
Copyright © 2008 Albuquerque Journal Journal Staff Writer
Home refinancings are accelerating in the Albuquerque metro area as owners wake up to historically low interest rates on mortgages.
"We're seeing a huge uptick in mortgage applications, mostly refinancings," said Lyle Greenberg, executive vice president of residential lending at Albuquerque-based Charter Bank and Mortgage. "We've seen a 250 percent increase to date compared to what we saw all of last month."
Other local mortgage lenders and brokers also say refinancings are coming in at up to double the pace of November.
The impetus for the refinancings has been a dramatic drop in interest rates on 30-year, fixed-rate mortgages from an average of 6.09 percent in November to a 37-year low of 5.14 percent for the seven-day period ending Dec. 24, according to Freddie Mac.
Homeowners find the low rates attractive for refinancing for a variety of reasons, such as reducing monthly mortgage payments or pulling out some home equity as cash to pay bills. Ultimately, said Vera Molina of Trinity Mortgage, "If you can put yourself in a better financial position, it's a good call."
Picking up momentum
Refinancings are also picking up momentum nationwide. Mortgage applications increased 48 percent for the week ending Dec. 19, according to the Mortgage Bankers Association.
Most of the applications in the Albuquerque metro appear to be self-generated by the mortgage companies themselves.
"We've been going to our client data base and actively soliciting them if they have a 7 percent or 8 percent rate on their mortgages," said Steve Cecco, president of AmeriStar Mortgage Group in Albuquerque.
AmeriStar is a mortgage broker that does almost all of its work by repeat customers and referrals, he said. "I've gotten 10 cold calls from people in the last two days," he said. "That's 10 more than I usually get."
Other brokers and lenders said the same thing, although Cecco said he expects volume of cold calls to pick up as media coverage of the low mortgage rates intensifies.
Fed decisions
The recent drop in mortgage rates can clearly be traced to the Federal Reserve's announcement on Nov. 25 that it was going to spend $600 billion to increase the availability of credit for people to buy houses, said David Jansen, senior vice president of financial risk at Charter.
Most of the Federal Reserve's money — $500 million — will be spent on buying residential mortgage-backed securities guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae, which are government-sponsored housing enterprises.
"Most residential mortgages today are packaged into mortgage-backed securities that are guaranteed by the government and sold to Wall Street," Jansen said.
The Fed's announcement "created the perception of a huge change in the supply-demand equation for mortgage-backed securities," Greenberg said.
The government's announced purchase would take a big chunk out of the supply of securities available to other investors, typically large institutions such as banks. The result was an overall surge in demand for investing in the securities.
"That drove down interest rates," he said.
The surge of investment marks a turnaround in the market for mortgage-backed securities, which had fallen out of favor with institutional investors in the wake of the mortgage meltdown that began a little over a year and a half ago.
Another discouraging factor is the decline in home values around the country, said John Snyder of Superior Mortgage Services, a Albuquerque-based lender. "Investors are skittish about mortgage-backed securities because of the potential for declining collateral," he added.
Jansen observed, "The term 'mortgage' just hasn't been very popular on Wall Street."
The meltdown, he noted, has centered on subprime home loans packaged into mortgage-backed securities that later lost value due to foreclosures. Those subprime securities were not guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae, he said.
Welcome business
Refinancings have been a shot in the arm for mortgage companies, which have seen business decline with the slowdown in residential real estate.
The companies are classified within the "financial activities" employment sector, which lost 400 jobs in the metro during the first 10 months of this year, according to the state Department of Workforce Solutions.
How long mortgage rates stay at or near historical lows is anybody's guess.
Rates climbed from a monthly average of 5.76 percent in January to 6.48 percent in August, then dropped down to the low of 5.19 percent earlier this month, according to Freddie Mac. The last time mortgage rates were as low as they are today was the average of 5.23 percent in June 2003.
"Volatility has been an issue," said Adam Consiglio of New Mexico Mortgage Co., a brokerage in Albuquerque. "We've seen them change as much as five times a day."
Snyder said, with the country in recession and financial markets in disarray, there's no compelling economic forces to keep rates low. "A few bad economic reports could cause mortgage-backed securities to fall out of favor (with investors)," he said.
And if that happens, he said the low mortgage rates could quickly disappear.
Who can — and should — consider refinancing
• Good credit matters — it also gets you a better rate. It will be hard to refinance with bad credit.
• It will be almost impossible to refinance your home if the value is less than your mortgage (unless you choose to pay the mortgage down).
• Although every person has unique circum-stances, it usually makes sense to refinance if you can improve your interest rate by about 1 percent. On a $200,000 mortgage, for example, a shift from 6.25 to 5.25 percent interest can save more than $100 per month. More important is analyzing your monthly savings vs. the cost of the loan to see how long it takes to "break even" on the loan costs. If you plan to stay in your home for several years, the benefits of refinancing are greater.
• Home owners who have an adjustable rate mortgage might want to consider refinancing.
• Because pricing is so dependent on credit and qualifying guidelines, a lender cannot give you a firm rate quote without taking an application and checking credit. You cannot depend on any price quote if that has not been done.
• Your individual circumstances will dictate whether it makes sense to get a lower rate with some "points" charged or a slightly higher rate with no points.
• Work with a local lender so that you know the people who are going to make you a loan. Out of town and Internet lenders don't know our community and can often be unreliable.
SOURCE: Charter Bank and Mortgage and other sources
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