14 May 2003, 15:30  US mortage refinancings surge as rates drop

NEW YORK, May 14 - Record low mortgage rates stoked demand for home loan refinancings last week as more Americans shored up their finances by cutting borrowing costs, according to an industry survey on Wednesday. While the hectic activity in refinancings once suggested a pickup in spending would soon follow, uncertainty about the U.S. economy and a cloudy employment picture has many home owners using money from cash-out refinancings to cut mortgage payments or pay down debt. Demand for mortgages to buy homes fell only marginally and traffic in loans to purchase homes likely will remain steady as traditional spring buying steps up. Some home owners refinancing now or considering doing so may have refinanced as recently as six months ago, according to market watchers who believe mortgage rates are poised to drift even lower and will fan even more demand for mortgage refinancings. "We could see perhaps further declines in rates. Barring any big change in yields, it is very likely we'll see rates at the same level or lower," said Frank Nothaft, chief economist at Freddie Mac.
Rates for the most common home loan, 30-year mortgages, fell to a record low of 5.27 percent in the week ended May 9, according to the Mortgage Bankers Association of America, an industry trade group. Its widely watched measure of demand for home loan refinancings, the refinancing index, rose 19.3 percent to 7,250.0. The previous low for the 30-year rate was 5.42 percent in the March 7 week. The association's market index -- a measure of overall lending activity -- rose 13.7 percent to 1,417.8 and its measure of demand for loans to buy homes, the purchase index, slipped 0.2 percent to 415.2. "Whenever we have lows in interest rates, we see robust levels of refinancings as well as purchase (applications). There is no question it is still at a very high level. We'll see a strong continuation of refinancing volumes," said Nothaft. Lenders have their hands full with refinancing business this spring and business is sure to pick up even more.
"We are seeing seasonal pickup in spring home buying activity. It will be a very lively spring for mortgage lenders," he said. Some of the purchases are so-called trade ups -- moving to a larger home -- or first-time buyers who have seen borrowing costs fall so much that it no longer makes economic sense to rent. "Many families are doing that calculation and they are seeing this is the optimum time to move into first-time homeownership," said Nothaft. One lender encouraging his clients to refinance is John Svirsky, a real estate broker based in Garrison, New York.
"It is not that they are coming back as much as I call them and tell them now is the time (to refinance). I'm being very proactive right now in calling them back," he said. Svirsky said that when rates do eventually rise from current levels, they will do so rapidly, so he is encouraging his borrowers to move quickly. "I'm locking in clients on the sidelines telling them 'this is a good time.'" Many of his borrowers are cash-out refinancers who are looking to squeeze equity out of their homes. In previous years, this money would have been readily spent, but in the current uncertain economic environment, many borrowers are refraining from spending right away.//

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