Banks see flurry of refinancing

Low interest rates have sparked what some are calling an unprecedented flurry of home mortgage refinancing applications in recent weeks, a bright spot in a bleak local real estate market.

Still, some mortgage bankers said they're seeing some homeowners shut out of lower mortgage payments by the recent decline in home values in the region or by stricter lending guidelines. Other homeowners are interested but remain on the sidelines, hoping even lower interest rates are on the horizon.

Rates hovering at 5 percent - and even a bit lower for those with great credit -  are goading some homeowners with adjustable-rate or balloon mortgages to refinance and are enticing even those with fixed- rate mortgages that just a few years ago would have been considered low interest, according to a half-dozen mortgage bankers interviewed this week.

"Once we start paying the bill for all of the stimulus packages for the economy, we may not see rates this low again in our lifetime," said Jay Garten, president of Peoples Mortgage Corp. and vice chairman of the Colorado Mortgage Lenders Association. "I didn't think in my lifetime I would see rates like this. If borrowers wait for rates to go lower, they will miss this opportunity."

Other brokers report homeowners are thinking the same thing.

"We've seen a massive increase in the number of people applying for refinances," said Ted Gallegos, area manager for Wells Fargo Home Mortgage, the largest home lender in the region. "We're seeing a lot of well-qualified borrowers and approving most of them."

Refinancing activity soared after Thanksgiving, when the Federal Reserve announced it would buy mortgage-backed securities to help loosen consumer lending. That announcement sent mortgage rates plummeting well below 6 percent, breaking a psychological barrier. Refinance applications have soared each week since, though they tapered off around New Year's.

National and local lenders said activity has rebounded to pre-holiday levels as rates have continued to drop. This week, a 30-year, fixed-rate mortgage averaged 5.01 percent, down from 5.10 percent the previous week and 5.87 percent a year ago, according to a Freddie Mac survey released Thursday. That's the lowest since the survey started in 1971. The Fed began buying mortgage-backed securities this week, which helped push rates down.

The flurry in refinance applications has been a boon to the lending and real estate industry, which has been roiled by slumping home sales, rising unemployment and job insecurity, and parsimonious consumers.

"This business would be very scary right now without the refinance business," said Robert "Hutch" Hutchison, president of Adams Mortgage Co. LLC. "There is no safety net of (new mortgages to finance). This refinance boom is a nice Christmas present for the industry in a very difficult year."

Still, some homeowners are hoping the new year brings a sweeter present - even lower interest rates.

"More than half of the borrowers scheduled to close this month have not locked their rate because they are expecting rates to go down again with the weak economy," Hutchison of Adams Mortgage said.

Lonnie Burkholder, vice president of mortgage lending for Air Academy Federal Credit Union and first officer of the Southern Colorado Chapter of the Colorado Mortgage Lenders Association, is seeing the same trend: "It has been a frantic market because Realtors want to close quickly out of fear of losing the deal and borrowers are pretty fickle. Both borrowers and lenders are second-guessing themselves. We are seeing borrowers in refinances and purchases cancel at the last minute because they want to wait for a lower rate."

Count Robert Stammer among them. He and his wife, Eileen, are poised to refinance the home they've owned in the Skyway neighborhood for 12 years, in part to prepare for next year, when the couple will have two children in college. But Stammer said they're holding off on the required appraisal.

Their current 30-year mortgage has an interest rate of 6.25 percent; the best rate they've been quoted for refinancing is 4.97 percent.

"I'm debating - it's right on the verge for me," Stammer said. "I'm kind of watching and hoping it's going to go down. ... If they don't, I may hold off. I'm a fence-sitter."

Stammer has an advantage that many now don't in Colorado Springs. Although he's expecting an appraisal will show some decline in the value of his home, he has plenty of equity to do a refinance deal.

But some mortgage bankers said other homeowners in the region who are, as they say in the trade "upside down" aren't so fortunate.

"The biggest adverse factor preventing refinances is property value," said Garten of Peoples Mortgage Corp. "If the value has gone down since you bought the home, it may be harder to do a refinance."

Consider: The median price of homes sold in Colorado Springs and surrounding communities fell to $180,000 in December, a 16.2 percent decline from $214,882 during the same month in 2007, according to figures released Thursday by the Pikes Peak Realtors Association.

It was the lowest median price for homes sold in any month since $179,900 in February 2004, and the percentage decline in December was the biggest during the 16 years the association has tracked the statistic.

That means people who bought homes in the last few years and who didn't put anything down could owe more than their house is worth.

That's the  situation Harold Edwards and his wife, Corine, find themselves in.

 Edwards, 68, a veteran and 20-year employee of Goodwill Industries, has a good job and has worked hard to raise his credit score, two criteria lenders want to see in the wake of lax lending practices by some institutions the past decade. But he's finding it difficult to get out of an 8.8 percent adjustable-rate mortgage he and his wife took out two years ago. They had hoped then the ARM would free up some money so they could repair credit battered when Corine lost her job at Apple and then was hit by cancer.

 Edwards said the couple reckoned the value of their home would increase over a couple years and they could use that equity to get back into a fixed-rate mortgage.

They were shocked when an appraisal done for a recent refinance application revealed they were in a bind.

"What happened was the appraisal (done two years ago by a now-defunct company) wasn't right. It was set up so the loan could go through," he said.  "The house is worth less than what I owe. Now I'm upside down, and most people are telling me its going to be hard unless the government comes up with some kind of deal."

Ironically, that's unlikely, since he's struggled mightily to stay current on his mortgage payments, even as his wife's health has deteriorated. The federal Hope for Homeowners program, which debuted Oct. 1 and is designed to refinance financially troubled homeowners into new government-backed mortgages, requires that homeowners be at risk of default and foreclosure.

"I'm still trying. Lonnie (Burkholder, his mortgage broker) is still trying," he said. "But really, I'm stuck. And I'm not the only one out there in this situation."

The brokers interviewed said there will be some people who won't be able to take advantage of the current low interest rates, particularly those highly leveraged in prior loans or who cannot demonstrate steady income. But Gallegos of Wells Fargo said reports of draconian lending standards have been "blown out of proportion."

 He and other experts suggest homeowners contact reputable banks and mortgage brokers to see if they can qualify for refinancing - and if it makes sense in their case. If it does, they said, there may never be a better time to do it.

"I did a quote this morning that would save one client $275 a month," Rick Smith of First Colorado Home Loans said early last week. "There can be a lot of money savings."
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The Washington Post contributed to this report.