By Russell Grantham
The Atlanta Journal-Constitution
Jon McKenna hopes to pay off his home sooner by taking advantage of suddenly lower interest rates to trade in his 30-year mortgage for a 15-year one.
If he can talk to his mortgage lender, that is.
“Right now I’ve been trying to get somebody on the phone,” said McKenna, executive editor of Strafford Publications, an Atlanta newsletter and business conference company.
It turns out he has lots of company. Mortgage lenders’ phones are ringing because interest rates on home loans have plunged about 1.5 percentage points in the past two months. The big drop is in response to the Federal Reserve’s recent interest rate cuts and a commitment to buy huge blocks of mortgage-backed securities in the first half of this year.
The Fed announced in November that it would spend up to $500 billion to buy mortgage-backed securities and other debt from Fannie Mae and Freddie Mac to pump cash into the mortgage market. Soon after, home loan rates started dropping. The national average rate on a 30-year fixed-rate mortgage dropped to 4.89 percent in the second week of January, from almost 6.5 percent in mid-October, according to the Mortgage Bankers Association, a trade group.
Some local borrowers have snagged rates below 5 percent on 30-year fixed-rate mortgages.
“We’re saving a lot on interest,” said Pat Garner, a self-employed Web site developer and consultant who refinanced her Douglasville home two weeks ago, replacing her 3-year-old mortgage, a 30-year loan at 6 percent. With a new 30-year loan at 4.5 percent, her monthly payment dropped about $100, to $715, she said.
Her earlier interest rate “was not that bad,” said Garner, whose 88-year-old father, James Garner, lives with her. But the extra money will come in handy, she added. “That hundred dollars a month goes toward bills.”
Such potential savings, or a chance to pay off homes faster, has triggered a boom in applications by homeowners eager to refinance. An index measuring applications for refinance mortgages nationwide has jumped more than fivefold in the past two months, according to the Mortgage Bankers Association. A similar index for home-purchase loans has risen about 30 percent in the same period.
“Any time you have rates in the fours [percentage points] you’re going to have lots of activity,” said Brooks Campbell, senior vice president of Vanguard Mortgage Corp. in Atlanta. “January has just been absolutely fantastic.”
Campbell said the number of people calling his office to refinance their homes has more than quintupled since November. Refinance applications now account for about 80 percent of his business, from roughly 20 percent in late November.
He said the boom in refinance business mirrors a burst of activity in mid-2003, when mortgage rates had fallen to similarly low rates after the 2001 recession.
However, he and other industry players say there are also big differences between the lending environment now and in 2003. Credit standards are much tougher now than in 2003. Lenders are requiring more documentation of borrowers’ incomes and generally better credit scores, although Campbell said money is available to people with less-than-perfect credit.
Also, after the subprime mortgage meltdown in 2007 and 2008, adjustable-rate mortgages and interest-only mortgages generally aren’t available now, or are more expensive than fixed-rate loans. So-called “jumbo” mortgages over $417,000 also are much more expensive and tougher to get, say people in the industry.
“The hardest issue that we would have today is appraisals,” Campbell said. Because of declining home values over the past two years, many applicants have had to walk away without new loans after finding out they owe more on their old loans than their houses are now worth.
Much like 2003, Michael Stallings, manager of Opteum Mortgage’s Douglasville branch, said his phone is “ringing as fast as you can answer it.” But because of the decline in home values and tougher credit standards, the share of customers who ultimately qualify for loans has dropped to about a third from perhaps 80 percent in 2003, he said.
“They may owe exactly what it’s worth. That’s a hard conversation to have,” Stallings said, adding that the days of 100 percent loans are over.
Still, he said many customers are determined to do what it takes to cash in on today’s low rates. A handful have even paid down their old loans to offset their lower home values in order to qualify for a new loan, he said.
“That’s just not something that would ever have happened before,” Stallings said.
Almost all his customers want traditional fixed-rate mortgages rather than more exotic loans, and almost a third want to pay off their home more quickly by switching to 15-year mortgages, he said.
“It’s interesting how the switch has flipped,” he said. “Maybe one in a hundred [customers] would buy a 15-year mortgage two years ago.”
But while he and other industry players welcome these signs of a thaw in the credit markets, they don’t view it as the beginning of a broader turnaround.
The continuing flood of home foreclosures is still holding down home values, and the loan boom so far has bypassed many people. Also, it’s unclear what will happen later this year once the Federal Reserve’s program to pump up the mortgage market runs out of funding.
“This is not the salvation of the industry by any stretch of the imagination, but it is a shot in the arm,” Stallings said. “It’s obvious to me that the biggest problem is the foreclosures.”
So far, the federal bailout and loan modification programs haven’t done much to stem the rising tide of foreclosures, said Richard Martin, a real estate professor at the University of Georgia’s Terry College of Business. The reworked mortgages are “still not really affordable” for many homeowners, he said.
Likewise, the current refinance boom won’t help a lot of homeowners who are struggling, he added.
“The problem is these [loans] are probably only helping people that are in good shape anyway,” he said. Banks and other mortgage lenders are “really cautious right now,” he said, while lower interest rates so far haven’t spurred many would-be home buyers to enter the depressed real estate market.
“They don’t want to see prices drop another 10 percent” after they buy homes, he said.
Still, the fact that low-cost mortgage loans are now available to some people is an “optimistic sign,” he added —- and rather tempting.
Martin said he’s about to start shopping for a cheaper loan to replace the 6 1/8 percent mortgage he got less than three years ago on his home in Athens.
“I think the time has come,” he said.
MORTGAGE TIME
With some mortgage interest rates at their lowest levels in decades, it’s a good time to refinance, experts say. Here are their tips on what to do:
> Be persistent. Mortgage lenders have cut staff and are getting lots of calls, so you may have to be patient.
> You may want to wait. Or maybe not. Even the experts disagree on how low rates will go or how long bargains will last. With 30-year mortgages below 5 percent, you can’t lose if you plan to stay in your house long enough for the lower payments to offset the closing costs.
> Expect tougher lending standards. Many lenders are demanding much better credit and documentation of income and employment than in the past. A low home appraisal can also scuttle a deal.
> Get your financial house in order. The Mortgage Bankers Association expects rates to stay depressed all year. That may give many homeowners time to improve their payment histories and to pay down their old loans to qualify for a new one before interest rates rise.
ELIZABETH LANDT / Staff
LOW RATES FUEL REFINANCING BOOM
Mortgage lenders' phones are ringing off the hook as homeowners try to catch the lowest interest rates in years. Some Atlanta lenders are offering rates below 5 percent on
30-year mortgages.
National index based on number of applications
Jan. 4, 2008: 2,494.2
Jan. 9, 2009: 7,414.1
Source: Mortgage Bankers Association
The recent trend has been great for consumers. With the lower interest rates, they can save a lot of money.
Posts
Laser Hair Removal, Remove Unwanted Hair
15 years ago
No comments:
Post a Comment