Sub-6% mortgages fail to spur refinancings
Mortgage rates have fallen to near their lowest levels in more than two years, but consumers locally don’t seem to be reacting much — prompting desperate brokers to call customers to drum up business.
Rates on 30-year loans dropped to as low as 5.375 percent in recent days, following the Federal Reserve’s announcement last week that it will buy up $600 billion in mortgage-related debt to goose the frozen market.
Nationally, the average rate for 30-year mortgages fell to 5.53 percent from 5.97 percent, according to Freddy Mac’s weekly survey. The average for a 15-year mortgage, often used in refinancings, dropped to 5.53 percent from 5.74 percent. (The rates do not include add-on fees known as points. The nationwide fee for 30-year and 15-year mortgages averaged 0.7 point last week.)
And they could drop more, if the U. S. Treasury has its way. “We’re revisiting territory that we haven’t seen in a few years,” said Greg McBride, senior analyst at Bankrate.com. “You’re talking about already low rates going even lower.”
The last time rates were this low for any sustained period was in 2004 and 2005, and even that was historic. And while they’ve since ticked back up, they are still below 6 percent.
“This is great news for us all,” Jeanne L. Wiles, co-owner of LW Integrity Funding in Tonawanda. “Rates have significantly dropped. All things considered, we are heading into refinance time.”
That’s why mortgage brokers locally have been surprised they haven’t been bombarded by customers eager to get in on a deal. Normally, drops in rates spur new applications, especially for refinancing.
“I don’t think the public knows that rates are as low as they are,” said Ronald Michnik, president of Independent Funding, an Orchard Park mortgage broker who has been actively reaching out to past customers about refinancings. “That should be something that the public should be aware of.”
Instead, consumers appear to be virtually frozen by fear and uncertainty, stunned by the roller-coaster ride of the stock market, unnerved by the collapse of major banks and brokerages, and worried over their jobs. The year-end holiday period doesn’t make it any better.
“Interest rates have certainly dropped, but we haven’t seen any mass rush to refinance,” said Nancy Gascoyne, a broker at MultiSource Funding. “I believe it is the overall fear of the economy and the unknown that is holding customers back. People are hurting.”
So lenders are trying to prompt activity by calling past borrowers or those sitting on the fence to encourage them to act now.
“We are just beginning to see an increase in calls and we are contacting all of our previous clients to advise them that now may be a good time to refinance,” said Hunt Mortgage president Linda Mallia. “We can literally have a low rate available for only a matter of hours before the market whipsaws up.”
Ron Schimp is one of those who has been watching rates carefully. The 47-year-old trucker from Springville bought a property with two houses on it in March 2006, one with a $250,000 mortgage and the other with a $100,000 home equity loan. He had planned to sell the second home, but he and his wife are now keeping it and renting it out.
His mortgage rate is already good at 5.75 percent, but his home equity loan is variable. And while it’s great now at about 4 percent, he’s worried about what could happen. So he wants to consolidate them into one mortgage when rates get closer to 5 percent or even less.
“With the market the way it is, I thought it would be a good idea to check what the interest rates were,” he said. “If I can get a real good rate and combine the two, then I don’t have to worry about the rates.”
He might get his wish if the Treasury Department follows through with a new idea to spur the market. The Department is considering buying up mortgage- backed securities issued by Fannie Mae and Freddie Mac, if lenders agree to charge no more than 4.5 percent on loans to first-time home buyers.
That would be the lowest level for 30-year loans in history, though a 10-year loan briefly hit that mark in the summer of 2003. And it would save borrowers $61 a month in principal and interest on a $100,000 loan, compared with 5.5 percent.
According to Freddie Mac, the lowest rate ever recorded on a 30-year fixed-rate mortgage was 5.23 percent in June 2003.
“Wow, this is what we have been talking about,” said Gascoyne, past president of the New York Association of Mortgage Brokers. “There is so much unrest in the general economy that many borrowers are just waiting for the ‘ray of sunshine,’ and this could be it.”
And even though the proposal as currently envisioned seems to be limited to purchase loans — not refinancings — brokers are licking their chops.
“When my kids heard about it, they started adding to their Christmas list,” Mallia joked. “I think this is a much needed shot in the arm. This is an enticement to the rest of the country and a gift to Western New York. We haven’t suffered the disease yet we get a full dose of the cure. It’s a wonderful deal.”
The effort to unclog the mortgage pipeline comes after the financial crisis caused the credit markets to freeze in October when worried investors stopped buying securities.
That, in turn, caused lenders to tighten up sharply and reduce their lending, and also drove rates up, making it more expensive to borrow. So mortgage brokers found their business brought to a virtual standstill.
That suddenly changed after the Fed announced late last month it would spend $500 billion to buy mortgage-backed securities and $100 billion to buy direct debt issued by Fannie Mae and Freddie Mac. That reassured the market, sending rates down and demand up.
Already, national mortgage application volume more than doubled during the short Thanksgiving week from a week earlier, according to a survey by the Mortgage Bankers Association, which covers about half of all retail mortgage originations.
The MBA said refinance applications more than tripled, and accounted for 69.1 percent of all requests, up from 49.3 percent the week before. The group’s purchase application index rose 38 percent, with both conventional and government loan applications up.
Rates had previously fallen below 6 percent briefly in February, after the Fed cut its target for short-term interest rates twice in a few days. But they quickly moved back up soon after as the crisis picked up.
Now, “not only are rates coming down, but they’re expected to stay low because the Fed will be pumping money for an extended period of time,” McBride said. “And any Treasury action would accelerate that trend.”
It means that borrowers could consolidate higher-rate debt from other loans into a single fixed-rate payment — assuming they qualify under the tighter credit standards now in place.
For conventional loans, that means credit scores of at least 640 if not 660. For Federal Housing Administration loans, which carry higher rates than conventional loans, credit scores can be as low as 580 with extra fees, or 620 with no fees.
That rules out a lot of borrowers who used to qualify, reducing business. “Whether or not it makes sense for a particular individual is determined on a case-by-case basis,” said Brooke L. Anderson-Tompkins, president of 1st Priority Mortgage.
But brokers are still hopeful. “The market is still slower — however, there are plenty of new customers calling,” Wiles said. “It is definitely picking up.”
“Anything happening is much better than it’s been for the last month. It’s been so quiet,” said Michael Bonito, president of MultiSource. “I think we’re going to see the activity after the holidays. Those sitting on the fence need to get off and start the process soon.”
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