With mortgage rates at a 15-month low, the number of homeowners applying to refinance their mortgages has more than tripled during the last three months, according to surveys by the Mortgage Bankers Association of America.
“We are getting more calls. I must talk to 10 people a day who want to refinance, said Mike Anderson with Reliance Mortgage.
However, analysts don’t foresee the flood of refinancings that swamped the mortgage industry in 1993 and early 1994.
“In 1993, mortgage rates got down below 7 percent, and everybody who had rates over 8 percent by and large refinanced,” said Lyle Gramley with the Washington-based Mortgage Bankers Association.
“Unless mortgage rates drop dramatically, I don’t think well see numbers that high again.”
Market mortgage rates have fallen to about 7.5 percent recently from almost 9.5 percent for a 30-year, fixed-rate loan in late 1994.
Gramley says homeowners with a mortgage of more than 8.5 percent should start thinking about refinancing.
Homeowners are doing more than thinking.
In the first week of this month, refinance applications jumped by 35 percent, a poll by J.P. Morgan Securities found.
Pat Casey with Bankers Financial Mortgage said many home loans between August 1994 and March carried adjustable rates.
“Those borrowers are wanting to get into fixed rates,” Casey said.
The savings from refinancing can be significant. On a $150,000 mortgage, a two-point drop in the interest rate could reduce the monthly payment by more than $200.
Mortgage analysts estimate that between 1990 and 1993 Americans reduced their monthly mortgage payments by more than $40 billion thanks to plummeting home loan rates that allowed them to refinance.
Refinancings have been only a tiny part of the Texas mortgage business this year.
In the first quarter of 1995, only about 1,300 Dallas-Fort Worth area residents refinanced their homes, compared with more than 23,000 refinancings in the same period of 1994, according to county deed records.
The rise in refinancings couldn’t have come at a better time for mortgage companies, which have seen their business shrink as home sales have dwindled.
Even with the low mortgage rates, applications for home purchase loans have grown by only about 25 percent in recent months and remain almost 30 percent below their levels from the spring of 1994.
Home refinance application rates are about where they were in May 1994, but are running at only about 10 percent of the volume in mid-1993 when the refinance boom peaked.
Refinancings now account for about 25 percent of the mortgages made nationwide, compared with 65 percent in late 1993 and early 1994, according to the Mortgage Bankers Association.
While mortgage makers welcome the return of refinancing business, they don’t want to see activity return to 1993’s frantic pace.
“The mortgage bankers are excited about the fall in interest rates and the pickup in business, said Sam Lyons, an economist with Great Western Bank in California.
“But they will want to make sure there is a clear-cut trend here.”
“A lot of people refinanced in 1993 and 1994,” Lyons said. “Will they do it again?
The mortgage business has just completed a painful downsizing and consolidation as a result of the sharp declines in refinancings in late 1994 and early 1995.
Some industry leaders estimate that more than 80,000 people were laid off around the country because of the decline in business that occurred during that period.
“There will be some additional people hired to accommodate this new business,” Gramley said. “But I don’t think it is going to put tremendous strain on the industry.
“The mortgage business is much more heavily computerized and has many more automated systems than it used to.”
Cliff Cassidy III with Pacific Southwest Bank said local lenders will be careful about expanding the next time around.
“This has been an extremely painful time for our business,” he said. “There will be a lot of caution about hiring staff.”
