Mortgage Rate Jump Slows Market

A steep, unexpected jump in mortgage interest rates has dampened an otherwise strong county real estate market, spurring some to back out of refinancing deals and others to question home-buying decisions.

Most real estate analysts say rates should fall back slowly, but the sudden spike has made customers across the county wary of the future.

“Every agent I’ve talked to has at least one buyer that’s a little shocked,” said Chris Lev, president of the Simi Valley/Moorpark Assn. of Realtors. “It slows things down for a bit.”

The refinancing market has been particularly hard hit by last week’s mortgage rate increase up to half a point or more. A half point, or 0.5%, increase can mean an extra $70 a month in payments on a $200,000 home with a 30-year mortgage.

At Countrywide Funding Corp., one of the largest mortgage companies in the nation, rates on 30-year, fixed-rate mortgage loans with an up-front fee of 1/8 point--or 1/8 of 1% of the loan amount--jumped from 6.625% on Oct. 6 to 7.25% on Monday.

“Refinances have basically stopped,” said Dina Long, owner of D.L. Mortgage in Simi Valley.

With rates at record-breaking lows and Federal Reserve Board Chairman Alan Greenspan’s recent decision to cut interest rates, many home buyers had expected rates to fall even further.

The sudden reversal last week caught many by surprise, Realtors say.

“Everybody is in a panic,” said Garry Lee, president of American Bankers Financial Corp. in Ventura. “They think they missed the boat.”

Camarillo homeowner Paul Fagnant, who locked in an 6.875% interest rate on his home refinance last month, said he was lucky enough to get in before the surge.

“I was thinking they were continuing to go down, and when they took a blip up I was happy that I did lock it in,” he said. “I wouldn’t be doing it now.”

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Analysts say the jump in mortgage rates was a result of volatility in the bond market, which weathered heavy losses last week over concerns about global financial markets.

When prices on mortgage-backed bonds fall, interest rates rise to attract investment, feeding a parallel rise in consumer mortgage rates.

“This might have been a temporary uptick due to the bond market,” said Mary Riddel, an economist with the UC Santa Barbara Economic Forecast Project. “It’s kind of a fluke, but it’s not unheard of.”

The rate increase will probably most affect potential home buyers with marginal qualifications, analysts say.

“The only one that I can see getting hurt is that marginally qualified buyer with limited resources, where the only way they were going to be able to buy would be to get that very low rate,” said Jeff Comstock, president of the Ventura County Coastal Assn. of Realtors.

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For others, last week’s rate jump may only mean a cooling-off period.

Lee, of American Bankers Financial Corp., said his company is counseling clients to “sit tight, because the rates will come back down.” Lev, president of the Simi Valley/Moorpark Assn. of Realtors, agreed that the effects of the rate rise will be short-lived, provided rates do not jump higher.

“You may not do as many transactions as you would have if the interest rates were much lower, but in the end they’ll be making those purchases once the fear is gone,” he said.

“Usually these things move with fear,” Lev added. “That’s the psychological part of this.”

That fear should also be put into perspective, said Gabriel Cruz, manager of the Simi Valley branch of Countrywide Funding Corp.

Before last week’s surge, mortgage rates were at their lowest levels since the 1960s, Cruz pointed out.

“In the rate market that we’re at, anything under a double-digit rate has historically been considered a good rate,” he said. “Anything under 8% is, all things considered, excellent.”