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VOL. 124 | NO. 10 | Thursday, January 15, 2009

Mortgage Bankers Aflutter Over Refi Boom

By Eric Smith

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West Beibers

The new year brought new hope for the embattled mortgage industry, but it also brought a continuation of low interest rates, which has spurred a refinancing boom unlike any in recent memory in Memphis and elsewhere.

Although mortgages taken at the time of sale have decreased dramatically in light of the housing slowdown, homeowners have been taking advantage of low rates and saving thousands of dollars annually off their mortgage payments.

For the week ended Jan. 9, the national Refinance Index increased 25.6 percent, reaching its highest level since the week ended June 27, 2003, according to the most recent Mortgage Bankers Association report. Also, the refinance share of mortgage activity increased to 85.3 percent of total applications from 79.8 percent the previous week.

The average contract interest rate for 30-year fixed-rate mortgages fell to 4.89 percent from 5.07 percent, with points rising to 1.20 from 1.16 (including origination fee) for 80 percent loan-to-value ratio mortgages. The contract rate for 30-year fixed-rate mortgages is the lowest recorded in the survey; the previous low was 4.99 percent for the week ended June 13, 2003, according to MBA data.

While the getting’s good

Mortgage bankers are taking advantage of the historically low rates by taking as many applications as possible in case the rates changes.

“We’re working 14-hour days,” said West Beibers, president of Delta Trust Mortgage Corp. “The reason we’re working so many incredible hours is when a refinance boom hits, it’s here and then it’s gone in an instant.”

The current boom has lasted longer than most, dating back to Thanksgiving week and carrying through the month of December into 2009.

“Mortgage application levels have gone through the roof for us and for everybody else,” said Joel Graybeal, mortgage production manager for First Tennessee Home Loans. “The whole industry right now is trying to drink water out of a fire hose because of the incredibly high increase in application volume that was pretty high through December but has moved to a new level at the beginning of January.”

Refinancing a mortgage makes sense for many homeowners depending on their current rate, amount of equity and length of time they plan to remain in the home. Refinancing typically doesn’t make sense for homeowners planning to move soon.

Sam Goff, mortgage loan originator at Evolve Mortgage Services and president-elect of the Memphis Mortgage Bankers Association, noted that the refinancing boom can serve as a catalyst for even more business.

“It’s a contagion,” Goff said. “What’s typical on my desk right now is a loan where we’re saving the homeowner anywhere from $200 to $400 a month. This person is going into work absolutely ecstatic over saving $200 to $400 a month. If there is someone that they work with that owns their home and hasn’t thought about refinancing, all of sudden they start thinking about it.”

On the brain

Not only that, Goff added, the people who are thinking about buying a home hear these conversations and start to inquire. Before long, new buyers are hopping off the fence, as a Memphis Area Association of Realtors advertising slogan touts.

“Very soon, we’re going to see a very different market than what we’ve had the past year,” Goff said.

This latest boom is especially critical in light of the season. Beibers said the two-month-plus period between Thanksgiving and Super Bowl Sunday is slow, and the refi boom has served as a much-needed shot in the arm.

“Generally, this time of year is not the strongest time of year for purchases, so it’s a nice little bonus to have it at this time of year,” Beibers said. “If the rates will stay low, which we think they will, it will stimulate purchases. The refinance boom always precedes the purchase boom.”

Meribeth LaBarreare, vice president and senior loan officer for Magna Bank and the 2009 president of MMBA, said mortgage bankers are hopeful that history repeats itself.

“During the last refinance craze, people started picking up purchases, and people started buying houses from builders and move-ups,” she said. “I’m hoping we will see that same trend again.”

Most mortgage bankers agreed that the refinancing boom can serve as a precursor to brighter times for the industry, which has seen some dark days coming off the national subprime fallout and credit crunch.

“If these rates prevail for any length of time, 2009 is going to end up being a good year for anybody in the real estate business, whether it’s Realtors or builders or whoever, because the demand, I think, will pick up,” Goff said. “Come springtime, the purchase market is going to be fine.”

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PROPERTY SALES 89 344 19,573
MORTGAGES 110 422 22,914
BUILDING PERMITS 207 838 40,029
BANKRUPTCIES 60 356 13,104

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