GOOD NEWS FOR INVESTORS, BORROWERS : A Matter of Great Interest : Thousands Rush to Mortgage Lenders as Rates Fall to 20-Year Low
Customers in Southern California are flooding lenders with mortgage-loan applications as the steep plunge in long-term interest rates in recent weeks has sparked a new wave of mortgage refinancings and lured new buyers into the housing market.
The drop has also boosted the value of lending stocks, allowed consumers to take out larger loans at lower rates and reduced the appeal of the traditional 30-year mortgage. The developments have been a welcome tonic for a region hard hit by job cuts.
Some, such as Eric Fleeks, are even finding that buying is cheaper than renting in this low-rate environment. “I figured prices and rates just couldn’t go any lower, so I finally took the plunge,” said Fleeks, a car salesman who just moved into his new condominium in Van Nuys.
“I was renting a place for $1,199, and now I own a place that’s the same size and pay $917. I can’t remember the last time it was cheaper to own than rent.”
Although most borrowers can still expect their loan application to be processed within 30 or 45 days, some lenders predict that it could soon take two months or more if rates keep dropping and home sales continue to improve.
“We’re already making plans to put people on overtime and hire some part-timers if business keeps going like it is now,” said Herb Tasker of All Pacific Mortgage Co., whose 15 California offices have seen the number of new loan requests double in the last two weeks.
Rates on fixed, 30-year loans fell to 7.44% last week from 7.53% the previous week, according to the Federal Home Loan Mortgage Corp. It was the ninth consecutive week that rates have dropped, pushing them to their lowest level since early 1973.
Lenders say their business began to pick up at the end of last year, when buyers began shopping in earnest for new homes.
But the continued decline in mortgage rates--which has accelerated sharply since the end of January--has triggered a new level of refinancing not seen since last summer, when rates fell below 8% before climbing upward again in the fall.
“We’re getting good action on both purchase loans and refis,” said Sam Lyons, senior vice president of Great Western Bank, where loan applications are up about 25% from a month ago.
From 3,000 to 4,000 would-be borrowers a day are calling the mortgage-banking subsidiary of Countrywide Credit Industries in Pasadena, up from an average 1,500 daily calls in December.
“That doesn’t even count the people who are calling or visiting our (120) branches,” said Jerry Baker, Countrywide’s managing director.
The drop in rates has boosted the popularity of fixed-payment mortgages, but lenders say that adjustable home loans still have an appeal, especially to those who refinanced within the last year.
For example, many homeowners who refinanced when fixed rates first dropped to 8% last summer cannot now justify the up-front costs involved in refinancing again at today’s 7.5% rate.
But with introductory rates on adjustable loans now in the range of 4% to 5%, many borrowers are refinancing again with an ARM to trim hundreds of dollars off their monthly mortgage payments, said Stan Goodfriend, a mortgage broker in Beverly Hills.
Many of today’s borrowers are also seeking larger loans. Even first-time buyers are seeking three- and four-bedroom homes because low rates and lower home prices allow them to get more for their money, said Howard Levine, president of Calabasas-based ARCS Mortgage. The firm’s average loan jumped to $155,760 in February from $137,570 in January, Levine said.
Levine and some other experts say the trend toward larger mortgages may continue in light of President Clinton’s effort to raise the top federal tax rate to 36% from 31%.
“A home is one of the last tax shelters available, and higher tax rates would make interest deductions worth more,” said John Tuccillo, chief economist for the National Assn. of Realtors.
The recent drop in rates has also boosted the popularity of 15-year loans or other types of “quick-pay” mortgages, which slash borrowers’ long-term financing costs and let them own their home sooner.
About 35% of all the new mortgages purchased by the Federal National Mortgage Assn. last month were for less than 30 years--up from 11% two years ago.
Linda Kelly of Los Angeles had 23 years left on her 30-year, 10% loan when she recently refinanced, opting for a 15-year mortgage at 7%. Her payment still dropped about $25 a month, she said.
“I’ll own my home eight years sooner, and have a little extra spending money each month to boot,” she noted.
The recent jump in new loan applications has sent the stocks of many home-mortgage lenders soaring. Countrywide Credit, BankAmerica, Bank of New York, Wells Fargo and Citicorp are among the big publicly traded lenders whose stock is at or near their 52-week highs. The news, however, is not all upbeat.
Many people who bought their house over the last two or three years cannot refinance at today’s lower rates because the prolonged slide in values has virtually wiped out their equity.
“It’s not a widespread problem, but we’re running into it in a few places, like the Westside of Los Angeles and the Lancaster area,” banker Levine said.
Falling Rates Rates on 30-year, fixed mortgages have dropped in each of the last nine weeks and are now at their lowest levels since February, 1973. The rates below do not include loan fees and other charges. Nov. 6, 1992: 8.29% March 5, 1993: 7.44% SOURCE: Federal Home Loan Mortgage Corp.
