Number of mortgage refinancings surges

By Thomas A. Forgarty
USA Today

The Mortgage Bankers Association of America reported yesterday that the volume of refinancing applications last week was five times more than a year ago, and topped the earlier record set in October 2002 by 29 percent. Applications for refinancing have increased 64 percent in just three weeks.

Borrowers are reacting to the recent decline in already-low mortgage rates, said MBA economist Phil Colling. MBA last week measured a record-low average interest rate of 5.42 percent for 30-year fixed-rate mortgages. Uncertainty about the economy and war in Iraq has boosted refinancing in two ways, experts said:

• Investors are seeking safety. That has flooded the bond market with cheap capital for home financing. Result: Ultra-low mortgage interest rates.
• Rattled by the same worries as investors, homeowners are eager to lock into the security of lower monthly house payments. "People are wanting to rid themselves of at least some of the uncertainty in their lives," Colling said.

The recent interest rate decline has given broad new incentive to refinance, even for some homeowners who took out their last home loan as recently as last year. By trading a 6.75 percent for a 5.5 percent rate on a $200,000, 30-year mortgage, a borrower cuts monthly payments by $161.

Mortgage lenders said the stable, low payments offered by a 30-year fixed-rate mortgage continue to make it the favorite for most refinancers.

Among trends lenders are seeing:

• Serial refinancers. Doug Perry, vice president at lender Countrywide, said many loan applicants are on their second or third refinancing since 2000.
• Fewer cash-outs. E-Loan President Joe Kennedy said fewer refinance customers are interested in using the transaction to tap their home equity. "Maybe they took out all the cash they needed last year," he said.
• Fast-track loans. The refinancing of a relatively new mortgage can be done quickly if the borrower's circumstances are unchanged and no additional cash is taken out of the deal. Perry said such deals save the borrower only a few hundred dollars in closing costs, but require much less documentation and can be completed in a few weeks.
• Mortgage insurance. Borrowers with less than 20 percent equity in the house typically are on the hook for monthly private mortgage insurance premium payments. Bob Walters, Quicken Loans vice president, said low interest rates have made it cheaper for many customers who pay a monthly premium for mortgage insurance to instead take out two mortgages. The first sidesteps mortgage insurance by covering 80 percent of the home value. The second, at a slightly higher interest rate, covers the borrower's excess house debt.