As mortgage rates slide, refinancing applications take off

The holidays can be slow in the mortgage business as consumers take a break to celebrate.
But at Gary Akright's Addison mortgage office, the phone is ringing off the wall.
The lowest loan interest rates in more than a generation have prompted thousands of homeowners to refinance.

But so far, there hasn't been a similar uptick in purchases. "We are seeing a lot of activity," said Akright, president of Dominion Mortgage Corp. "We are offering 30-year fixed rate loans at 4 7/8 percent right now, and that's great."

As home mortgage rates have fallen to their lowest point since the 1960s, the cost of financing a home has fallen more than a full percentage point since this time last year.
The drop results in savings of more than $100 a month on payments for a $150,000 loan.
No wonder applications to refinance homes have jumped more than 500 percent nationwide since October. So far, there has not been a similar jump in lending for home purchases. Loan application volumes for buying a house have risen less than 15 percent since mortgage rates took their dive.

Given the problems in the U.S. economy and worries about falling home values, it doesn't surprise analysts that the lower interest rates haven't kicked-started sales.
"Lower rates are certainly a factor, but they are only part of the solution to the housing issues," said Ted Wilson of Dallas-based Residential Strategies Inc. It's a given that most consumers don't buy houses when they're worried about their jobs or think prices are going down.
"Consumers are hesitant to make big-ticket item purchases when there is so much uncertainty with the economy," Wilson said. "The fact is that, for those who can qualify, there are some exceptional bargains available in the market, and finance costs are at record lows."
The increase in home refinancings will be a boost to the U.S. economy, said veteran housing industry analyst David Berson of PMI Group. "This will allow some people to increase their spending, which is not a bad thing for the economy," Berson said. Bigger wave ahead?
And there is the potential for an even bigger refinancing wave in the weeks ahead, he said.
"It takes people awhile to realize interest rates have changed," Berson said. "If rates stay at this level or move lower, we will see additional pickups in loan applications."
Unlike previous markets, not everyone will be able to take advantage of the mortgage rates – even if they go lower. Lenders are more demanding than they've been in years.
"Applications don't mean people will be qualified," Berson said.

Grapevine mortgage consultant Billy Parker said he's been "overwhelmed with applications the past couple of weeks."But he warns that borrowers "still need good credit for the most part."
Economists are cautious in their expectations of the recent mortgage rate drops.
"The reason I don't think the lower interest rates will work is I don't think interest rates are the issue," said James Gaines, an economist with Texas A&M University's Real Estate Center. "We've already had historically low interest rates. "The thing affecting the ability of people to buy is the tighter loan underwriting standards and – more important – requirements of larger down payments." The need for more money up front has made it tougher for first-time buyers.
And people buying houses priced above $417,000 will find that lenders want to charge them up to three percentage points more in interest. "The jumbo rates are still so high because the lenders can't sell that paper" to investors who got burned in the home loan market, Gaines said.
Neighborhood values for homeowners who decide to refinance, advisers point out that home values have declined in some neighborhoods, which could make it harder to obtain a new loan.
With thousands of layoffs during the last couple of years in the mortgage business, there are a lot fewer workers to handle the increased application volume. "We are starting to get some real backups in the processing," Akright said.

courtesty of steve brown/DMN