Refinance Boom Strains System
Tumbling mortgage interest rates have set off in recent weeks one of the most powerful home-refinancing booms in American history, making the phrase “lock me in” a household mantra.
But signs of strain on the system are everywhere. Loan volume has reached such a fever pitch that lenders, brokers, appraisers, title insurers and escrow companies maintain they can barely keep up. Customers are facing weeks-long delays in appraisals and hold times lasting hours on the phone lines of banks and mortgage brokers.
For Mike Siegfried, a home appraiser in Woodland Hills, it has meant not sleeping more than five hours a night for the last two months. For Ian Jack, a loan broker in Sherman Oaks, it has meant shaking off a bad cold and dragging himself into the office to shore up a burned-out staff.
Their labors are indications of how the record boom in home mortgage applications and refinancing has strained the nation’s home-finance infrastructure.
At Charlotte, N.C.-based Lending Tree Inc., an Internet-based mortgage broker, Web site servers malfunctioned sporadically Friday under the load of customers seeking pre-qualifications for loans. Borrowers were able to submit requests, but were experiencing delays in getting offers back, said Linda Mueller, a spokeswoman for Bank of America Corp., one of the lenders on the site. The Web site said it was working to install extra servers to handle the huge volume of business and expected things to be operating normally by today.
“Lenders are buried. Appraisers are buried. Things aren’t closing as quickly as we would like them to because we’re dependent on a lot of other people who are just as busy as we are,” said Ben Hunnicutt, a principal at Priority Financial Network, a loan brokerage firm in Calabasas. “The hard part is that it’s tough to deliver the same quality of service.”
That has frayed the nerves of homeowners and prospective buyers anxious to complete their financing deals before today’s record low rates disappear.
One is Glendale attorney Brian Hummel, who had been watching rates edge downward for much of this year. When rates for 30-year fixed-rate mortgages reached their lowest point in at least 30 years, driven lower by the economic slowdown after Sept. 11, he called his loan broker with an unequivocal: “Lock me in!”
But Hummel hasn’t heard whether he got his rate. His broker has been too busy to call him back.
“You tell people they have to wait three or four weeks, and they get upset,” said Siegfried, owner of HomeWest Appraisal.
In some cases, lenders aren’t allowing people to lock in until they have completed paperwork because there is too much volume, according to mortgage brokers. In the past, consumers could lock their rates when they applied for loans.
Behind the surge in activity is the plummeting of long-term interest rates. The downward slope, which had been in place for most of the year, sharpened dramatically after Sept. 11, when federal policymakers eased credit to keep the economy from crashing in the wake of terrorist shocks.
Another factor was the U.S. Treasury’s decision, announced Oct. 31, to end sales of its benchmark 30-year bond. The rush by professional bond investors to get their hands on the shrinking supply drove those bond prices higher and their interest rates lower.
“What’s happened is you’ve had an entire industry that’s been in overdrive all year,” loan broker Jack said. “After Sept. 11, you’ve gone into hyperspace.”
The average rate on 30-year fixed-rate mortgages fell last week to 6.46%, the lowest since government-sponsored housing finance agency Freddie Mac began keeping records in 1971. The average rate is down from 7.82% a year ago.
The difference means that homeowners can save thousands of dollars a year in mortgage payments by refinancing. The monthly payment on a $200,000 mortgage, for example, would drop to $1,259 a month at 6.46% from $1,443 at 7.82%--a before-tax savings of $184 a month, or $2,208 a year.
That savings is too much for many homeowners to resist. Countrywide Home Loans Inc., a unit of Calabasas-based Countrywide Credit Industries Inc., funded $14.8 billion in home loans last month, a 44% increase from September and more than double the $6.2 billion loaned in October 2000.
In California, 890,899 refinancings have been reported this year, more than double the pace of last year, according to DataQuick Information Systems Inc., a La Jolla-based research firm.
The speed at which rates have plunged has turned some homeowners into serial refinancers.
San Diego investment banker Randy O’Connell has refinanced his mortgage four times in two years, and he’s on the verge of doing it again--this time with a hybrid mortgage that’s fixed for five years, at which point it turns into an adjustable-rate loan. O’Connell decided to shun a fixed-rate loan because he is convinced the drop is not over.
“In six to eight months, I’ll probably refinance again and try to get a 30-year loan in the low sixes,” he said.
“People are [refinancing] two times, three times, four times so far this year because of the lower rates,” said Siegfried, the Woodland Hills appraiser. “I’ve been doing this for 10 years and there’s never been anything like it.”
Siegfried received 10 new requests for appraisals Friday, when two or three requests would have been a big day a year ago.
Ordinarily, bank fees, title insurance and other closing costs run several thousands of dollars in refinancing, meaning it can take a year or more to pay off. Multiple refinancing can take longer.
The continuing slide in rates has even produced a novel phenomenon: borrower’s remorse. Homeowners who locked in low rates in recent weeks have watched as rates continued to move lower.
Last week, Ray Tang paid $300 to have his Laguna Beach home appraised to lock in a 15-year refinancing loan at a 6% interest plus one point (or 1% of the loan amount). But when rates fell even lower this week, Tang said, “the lender was unwilling to unlock it.”
Instead, he opened negotiations with a second lender offering a mortgage at 5.88% plus only three-quarters of a point. Tang accepted, creating a bidding war of sorts between his lenders.
“I’m starting my own Priceline.com,” said Tang, who believes rates may fall even lower before he locks in the second offer.
At Marina Mortgage Co. of Long Beach, Production Manager Phillip Chenier said customers are following interest rate movements like they used to follow stock prices, trying to time falling rates until reaching rock bottom, checking with neighbors to determine their rates and taking that back to the lender to negotiate. In some cases, he said, consumers are holding out to save as little as $8 a month.
Some experts attribute the refinancing frenzy to the experience of 1998, the last time rates fell this sharply. At that time, the low rates were fleeting, said Greg McBride, financial analyst with BankRate.com. Consequently, consumers who were slow to apply for new loans missed out on the best deals.
Mortgage professionals think this time the low rates will persist.
“There’s no sign of inflation in the market right now,” said Steven Filsinger, president of Asset Alliance Mortgage in Carlsbad, Calif., who predicts rates will remain low at least through February. “I’ve tried to coach my clients that they’re going to need to be a little more patient. It is certainly prudent to look at refinancing right now, but I don’t think you need to be frantic.”
Nevertheless, companies throughout the mortgage industry are running at warp speed just to keep up with demand. Countrywide Credit has hired 2,000 workers since June to help deal with the refinance crush, bringing its payroll to 16,000 employees companywide, said Doug Perry, first vice president of the company’s consumer markets division. But another 2,000 positions remain open.
Similarly, in the last year Jack has doubled his staff to 20 people at Surety Financial Services Inc., which has arranged about $300 million of single family residential loans since January. He and his employees are still working 12- to 14-hour days seven days a week to match consumers to lenders.
“I feel terrible, but I can’t take off,” said Jack, nursing his cold. “People are burned out and there’s only so many files you can handle and still get home to see your wife and kids once in a while. God forbid you have somebody get sick or have an accident and be out for two or three weeks.”
Inevitably, the pace has led to delays, with deals taking longer to complete, he said. One recent refinancing almost fell through because Jack’s staff could not get the lender that owned the old loan to provide the paperwork needed to complete the deal.
“We gave them the [standard] 30-day notice, but I actually had to call the chief lending officer to get him to step into the service department to get this done,” Jack said.
“You normally don’t have the chairman of one company calling the chief lending officer of another, but you have to get the deal done.”
The delays have created some unanticipated glitches. One customer at Marina Mortgage planned to refinance a home with his girlfriend, Chenier said. But the process stretched long enough that before the deal went through, the couple had broken up.
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Times staff writers Liz Pulliam Weston and E. Scott Reckard contributed to this report.
