1 of 3 New Mortgage Loans in ’86 Used for Refinancing, Bankers Say

Homeowners stampeding to refinance their mortgages and take advantage of the lowest interest rates in seven years accounted for one-third of all mortgage lending in the past three months, the president of the Mortgage Bankers Assn. of America said Thursday.

The lower interest rates have led to fewer delinquencies and foreclosures but have caused long delays in loan approvals, said Ronald F. Poe, the association’s president.

“No one in their wildest dreams anticipated this,” said Poe, who also is president and chief executive of Dorman & Wilson Inc. of White Plains, N.Y., one of the nation’s largest private mortgage lenders.

Speaking at a news conference Thursday during the association’s conference on the secondary mortgage industry, Poe said mortgage lenders have “been overwhelmed from every side.”

Lenders provided $26 billion for new and refinanced mortgages in the first two months of this year, Poe said, leading him to project growth of more than 60% in mortgage lending this year--to $180 billion from the $110 billion reported in 1985. Last year’s loans more than doubled the 1984 figure of $60 billion, he said.

“Lower interest rates have allowed people not only to refinance but to sell homes--without taking a loss--that they might have gotten into over their heads,” Poe said.

The rush for refinancing has created long delays between the time of applying for loans and the closing date, however.

“At most state levels, the complaint made most is the time from application to closing,” he said, pointing out that the average lag has increased from 30 days to 60 days or longer in the past six weeks.

Such delays are unavoidable, however, because in refinancing a lender must go through all of the steps of writing a new mortgage, such as a property survey and a title search, to make sure that he has the first lien on the property.

In some cases, he said, lenders have raised their application fee to discourage borrowers from shopping around for low rates.

He said lenders have established priorities for customers, making new loans first, refinancing for existing customers second and refinancing for new customers third.

“It is a terrific time to be doing a great deal of new business, but we’re being inundated with refinancing,” he said.

The refinancing is a bonanza for homeowners, buyers and sellers. But lenders, such as savings and loan associations, face the risk of losing their profits in the boom if interest rates soar again.

Many institutions sell the loans on the secondary market to buyers who buy groups of mortgages--so-called bundles--or use hedging vehicles such as the futures markets to guard against such an increase, Poe said.

In a related development, the Federal Home Loan Bank Board reported Thursday that home mortgage rates on conventional fixed-rate loans dropped sharply between early February and early March to an average level of 10.93%.

The decrease of 0.43 percentage point from the average prevailing rates in early February was nearly five times the January to February decline, the board said.

The bank board said average rates on adjustable-rate mortgages also fell during the period--by 0.12 percentage point to 9.93% for loans containing interest caps and by 0.10 percentage point for loans without interest caps.

Rates have declined even further since the data was collected as a result of reductions in key interest rates by the Federal Reserve Board and by commercial banks.

Rates for conventional fixed-term mortgages are currently hovering at around 10%, with rates dipping below that level in some parts of the nation.