VOL. 123 | NO. 24 | Tuesday, February 5, 2008
Real Estate & Development
Mortgage Refinancing Business Picks Up
By Eric Smith
Low interest rates have sparked a flurry of home refinancing, giving the mortgage industry a shot in the arm it needed to cope with an anemic housing market.
Nationwide, the Mortgage Bankers Association's (MBA) Refinance Index increased 22.1 percent for the week ending Jan. 25, while the refinancing share of mortgage activity increased to 73 percent of total applications, up from 66 percent the previous week.
At the same time, the Conventional Purchase Index decreased 18.9 percent, a sign that fewer people are buying homes, making the refinancing spike even more welcome.
So, have mortgage companies in Memphis experienced the same refinancing buzz?
"We're definitely getting more calls, there's no doubt," said Chris Bowers, mortgage loan officer at Bank of America and president of the Memphis Mortgage Bankers Association (MMBA). "While it's probably increasing in application volume, we haven't quite seen that yet on our trends here locally. But the calls are coming more frequently and folks are looking to refinance. They're hearing the news out there and wanting to find out if it's the right thing for them to do."
Inquiries, production up
Whether refinancing is the right thing to do varies with each loan. Beth Riley, senior loan officer for Magna Bank, said homeowners need to consider numerous factors and discuss them with a mortgage banker before going through with a refinancing.
Riley said she considers a homeowner's past, present and future: how long they've been in the house, what kind of equity and rate they currently have and how long they plan to stay in the home. For example, if they're considering a move in the coming months, they shouldn't refinance. Instead, they should try to sell their home and take advantage of low purchase rates on a new home.
As Riley talked about different scenarios for refinancing, her cell phone kept ringing in the background, which she said has been common as clients keep calling for advice on whether to refinance.
"We're seeing a lot of inquiries," she said. "Our production numbers are up. Some people are going ahead and locking in the rates, some are holding off thinking they're going to get lower. It's definitely worth making a phone call."
Likewise, Pat Sandlin, president and CEO of Community Mortgage Corp., said refinancing business has been active at his company. January's numbers revealed that 25 percent of total production was from refinancing.
While that number was the same the previous month, he noted that in June refinancing accounted for only 5 percent of business.
"Our phone activity as for request and computation has really, really increased, so we anticipate that number to grow pretty substantially in the weeks to come," Sandlin said. "As long-term rates continue to fall - and we still believe they have a little ways to go - we see that number increasing as well."
Gambling on what's next
What rates do is anyone's guess. But recent Federal Reserve cuts gave astute homeowners the chance to lock in at historically low rates and save some money on their monthly payments, said Michael Wiegert, vice president of Wachovia Mortgage Corp. and immediate-past president of the MMBA.
"I think a lot of people were able to take advantage of it, and that's why we saw the increase in applications for that week," he said. "A lot of people used their head and said, 'OK, this is as low as it's almost ever been. Historically speaking, there's more chance for it to go up than go down, so I'll go ahead and lock in.' The people who did are very happy they did."
At press time, rates were around 5.5 percent for a 30-year, fixed-rate mortgage and below 5 percent for a 15-year, fixed-rate mortgage. Super low rates sometimes don't last more than a couple of days, but that's a part of the business that routinely keeps mortgage bankers on their toes as they try to find lower rates for their customers.
"It's almost impossible to time it," Wiegert said. "I started getting on the phone, like a lot of people did, and calling clients and saying, 'This is where we are today. If you're interested, we can lock it in for you.' Some people were interested, some people wanted to gamble and see if it went lower. It didn't."
'Shot in the arm'
One problem with the current refinancing craze is that values haven't appreciated like they have in past boom times. That leaves less equity for homeowners and less opportunity for cash-out refinancing or transactions that help consumers pump money back into the economy.
And that makes this refinancing period different than past ones.
"Values have been very flat and in some cases across the country declining," Bowers said. "Folks can still save money by refinancing, but they may not be able to pull cash out and then turn around and invest in the economy."
Regardless of what the refinancing trend does in the coming months, it has given mortgage bankers good news in an otherwise gloomy market.
"I think it is a little shot in the arm for those of us in the industry," Wiegert said. "Purchase money loans are down a little bit because there aren't as many people buying homes, so this kind of filled the gap for right now. We'll see how things go from here, but it certainly gave people in the industry more applications than they would have had had this not occurred."