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VOL. 123 | NO. 185 | Monday, September 22, 2008

Mortgage Bankers Anticipate More Activity

By Eric Smith

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The phone has been ringing nonstop for Sam Goff, mortgage loan originator for Evolve Mortgage and vice president of the Memphis Mortgage Bankers Association (MMBA).

With the recent drop of interest rates on the heels of the Fannie Mae and Freddie Mac crisis, Goff’s mortgage clients are calling to see if refinancing their mortgages might be a good idea.

Goff, who also hosts a radio show on 600 AM WREC titled “House Calls, All Things About Mortgages,” has been busy scribbling all of his clients’ loan particulars on a notepad to see who would benefit now and who needs to wait for the rate to keep dropping.

Whether or not it’s right for a particular client, the buzz created by the plummeting interest rate has been a boon for mortgage bankers – at a time when they desperately need it.

“I think it’s going to be very good for the mortgage lenders if it drops down just a little bit more,” said Goff, whose company is the lending arm of Evolve Bank & Trust.

“We’re going to be doing a lot of busi­­ness – and saving people some real money.”

Falling rates

Clearly, low rates during the past couple of weeks have been a shot in the arm for mortgage bankers. The average interest rate for a 30-year fixed mortgage fell to 5.82 percent from 6.06 percent, and the average interest rate for a 15-year fixed mortgage fell to 5.54 from 5.73 percent, according to the national Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey.

For the week ending Sept. 12, the MBA’s Refinance Index increased 88.1 percent, while the refinance share of mortgage activity increased to 51.6 percent of total applications from 36.3 percent the previous week. Those trends show no immediate signs of slowing down.

“Renewed financial concerns should keep long-term Treasury yields low and translate to lower mortgage rates in the near term despite some widening in mortgage spreads,” Orawin Velz, the MBA’s associate vice president of economic forecasting, said in a statement. “We expect to see meaningful increases in mortgage demand in coming weeks on both the purchase and refi sides.”

Chris Bowers, mortgage loan officer at Bank of America and MMBA president, said the number of inquiries into refinancing has indeed spiked in the past few weeks locally. But, he noted, numerous homeowners won’t be able to take advantage of the low rates and refinance because of declining home values.

Sagging values, coupled with a swell of 100-percent loans on the books, means this refinance period could wind up looking drastically different than others.

“Over the last several refi booms, when someone had accumulated extra equity in the property, they could cash out or pay some debts or lower their rate or whatever,” Bowers said. “Now, it may be a more difficult situation, like the purchase business has been because of the guidelines surrounding value and loan-to-value and so on.”

Looking for magical numbers

Carol McConkey, senior vice president for Paragon National Bank, agreed that a balance needs to be struck during a refinance craze, and that the slumping real estate market will take a toll on what direction homeowners decide to take.

“For some folks, it’s obviously an opportune time to look at doing something,” she said. “For others, (the rate) may need to go a little lower before it justifies them doing something. The other challenge in some of the deals is will the appraisal come in at enough to make it happen, because that can throw a monkey wrench into things.”

So the question then becomes, “When is it right to refinance?” Lisa Reid, executive vice president and mortgage division manager at Magna Bank, said if homeowners can get a rate that’s at least 1 percent better than their current rate, it might behoove them to call their mortgage lender.

Of course, Reid acknowledged that the magic number might be a 2-percent difference, but no matter how steep the rate drop is, other factors come into play, meaning the most important thing to do is pick up the phone and inquire about refinancing.

“What type of loan they’re in and how long they plan to stay in the home will determine how beneficial a refinance is,” said Reid, who also is past president for the Tennessee Mortgage Bankers Association.

Bowers agreed that there is no boilerplate for refinancing a mortgage, and that both lender and borrower need to crunch the numbers to see if – and when – the time is right.

“Each individual circumstance has to be reviewed. There is no catchall anymore,” he said. “In past times, a 2-percent drop was the way to go, or a 1-percent drop was the way to go. You have to weigh what your savings are versus what your costs are, how much longer you’re going to be in the home and what your goals are with this refinance. If you can make a savings occur in the time that you still think you’re going to be in the home, then you decide how big a savings you need to have.”

RECORD TOTALS DAY WEEK YEAR
PROPERTY SALES 51 223 1,152
MORTGAGES 55 189 861
FORECLOSURE NOTICES 25 45 144
BUILDING PERMITS 149 541 2,593
BANKRUPTCIES 24 120 581
BUSINESS LICENSES 14 65 264
UTILITY CONNECTIONS 0 0 0
MARRIAGE LICENSES 0 0 0