Rush to Refinance Swamps Lenders and Forces Delays : Mortgages: Lowest interest rates in 20 years bring deluge. Rate uptick could spark even more applications.
With a clean credit record and plenty of equity in his five-bedroom house, Dennis I. Forst thought lenders would be falling over themselves to help him refinance the Encino home.
But Forst, a financial analyst, was shocked when two financial institutions didn’t even bother to return his calls. At another, the phone was always busy.
“I was very surprised,” said Forst, who eventually found a mortgage broker who handled his inquiry promptly. “This was easy money for them. I wasn’t asking for a 90% loan. I though I would get them into a bidding war for my business. But I guess they were getting all the business they needed.”
The lowest interest rates in nearly 20 years have sparked an unprecedented boom in mortgage refinancings, but the crush of business is creating headaches for homeowners such as Forst and threatening to overwhelm lenders, escrow firms and appraisers.
One harried customer recently complained to the president of First California Mortgage Co. in San Rafael that he waited 2 1/2 hours on the company’s toll-free line trying to reach a loan agent.
“It’s just incredible,” said First California President Dennis M. Hart, acknowledging that such delays are unavoidable. “The appraisers are backlogged, the escrow companies are backlogged . . . and to keep up, we even had to work Thanksgiving Day.”
But the avalanche of business has had a positive effect, providing a temporary haven for thousands of former employees of distressed banks and thrifts who have found work at the nation’s 2,300 mortgage bankers.
Mortgage activity was strong all last year as about 1.5 million homeowners refinanced an estimated $160 billion in mortgage debt--more than double the $72 billion in refinancings in 1990, according to the Mortgage Bankers Assn. in Washington, D.C. But after a rapid succession of key interest rate cuts by the Federal Reserve Board in November and December, “the afterburners got lit . . . and now we’re into hyperspace,” said Michael Boland, vice president of sales and marketing at Santa Rosa-based IMCO Realty Services, a major mortgage lender.
Demand is especially strong in California, where the nation’s largest concentration of homeowners with adjustable-rate mortgages are switching in droves to 30-year, fixed-rate loans. Last week, the nationwide average for fixed-rate mortgages dropped to an 18-year low of 8.31%, according to HSH Associates, a Butler N.J. consulting firm.
However, refinancings by homeowners are proving less profitable for the industry than traditional home purchases, which generate settlement fees from both buyer and seller. Privately, some escrow companies have say they have compensated by boosting fees on document preparation and other paperwork during refinancings.
“The wave of applications continues to gain momentum,” said Angelo R. Mozilo, president of Countrywide Credit Industries Inc., the nation’s largest independent mortgage company. “We’re having difficulty coping.”
Countrywide said it has added 90,000 square feet of office space, 160 phone lines and 450 people in the last nine months in an attempt to keep up with the increase in loan volumes. And on Jan. 25, the firm, which currently employs more than 1,500 people at its Pasadena headquarters, plans to hold a job fair to fill more than 200 data processing, accounting, loan underwriting and other positions.
First California Mortgage Corp., hired 35 people in December alone, said Hart.
Castle Park Escrow in Woodland Hills has expanded its office space 30% in the last three months and has hired three additional people to cope with the extra work, said Laurie Nelson, president of the company.
At the Sunset Boulevard branch of Great Western Savings, stacks of mortgage refinancing applications stand more than a foot high on desks.
Fueling the refinancing boom are penny-pinching consumers such as Phil Holthouse.
The Los Angeles accountant already had a relatively low interest rate of 9 3/4% on his 15-year home mortgage. But to cut his payments even more, Holthouse decided to spring for a hybrid 7/23 loan at 7 1/2% from Union Bank. The interest rate of the 7/23 mortgage is amortized over a 30-year period during the first seven years of the mortgage. After seven years, the loan is due or the interest rate is renegotiated.
“I wanted to cut my mortgage payments,” Holthouse explained. “I’ll save more than a couple of hundred dollars a month.”
Banks and thrifts, which have been downsizing during the recession, have been reluctant to expand their lending staffs, and some experts think that strategy has hurt business. Many consumers interviewed by The Times report that independent mortgage lenders seem to be more responsive to their needs than banks and thrifts, whose salaried staffs usually aren’t given any financial incentive to aggressively pursue new business.
“My mortgage (banker) has been like an advocate for me,” said Larry Snegg, a Los Angeles financial consultant who recently refinanced his home. “I’ve had no problems at all.”
Another problem consumers have been spared, so far, is lenders not honoring their commitments to lock in interest rates.
“In 1987, people were complaining because lenders weren’t handling the paperwork quick enough and they lost their interest rate commitments,” said Randy Brendia, Southern California Regional manager for the state Department of Real Estate. He said that hasn’t happened in California so far because interest rates haven’t shot back up. But he urged homeowners to make sure loan application documents specify when rate commitments expire.
As heated as refinancing activity is, the rush could grow even more intense with an uptick in interest rates. HSH Associates said that the average rate on a 30-year fixed mortgage nationwide rose to 8.49% on Tuesday from 8.31% last week.
Another rush of applications wouldn’t be good news for television writer Norm Gunzenhauser, who said the refinancing of his five-bedroom home in Woodland Hills has been held up nearly two months because his mortgage broker--a middleman who brings together borrowers and lenders--has been unable to find an appraiser.
“I’m getting anxious,” said Gunzenhauser, who has yet to make a deal with a lender. “These are the lowest interest rates in years. I’m saying, ‘Let’s get this appraisal out of the way.’ ”
It is taking as long as six weeks to scheduled a real estate appraisal, according to Boland of IMCO Realty.
Appraisers, who are hired by lenders to estimate the value of real estate so that lenders can justify making a mortgage loan, seem especially under siege because the boom in mortgage refinancings coincides with the passage of new federal laws that require appraisers to be certified in order to conduct some transactions. Many states have implemented similar standards to conform with the federal rule changes approved as part of the 1989 Savings and Loan bailout bill.
But states are having to extend deadlines because not enough appraisers have been certified to handle the volume of business.
In California, where only 8,500 of an estimated 25,000 to 35,000 appraisers were certified in 1991, state officials pushed back the deadline until the end of February and are considering a further extension.
Coast Federal Bank, for example, was forced last month to hire outside appraisers to supplement its staff because of the huge demand for refinancings. The bank also doubled incentive pay to its staff appraisers to encourage them to work faster, officials said.
“There is a concern that we won’t have enough certified appraisers . . . to meet the demand given the number of refinancings taking place,” said Loretta Maxwell, an administrator at the California Office of Real Estate Appraisers.
