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Low Interest Rates Fuel Home-Loan Surge

The steady decline brings a boom in refinancing at the end of June, and draws even the most timid buyers into the housing market.


The steady decline in mortgage interest rates to among the lowest in 30 years has created a surge of home mortgage lending and refinancing, and nudged even the most reluctant home buyers to take the plunge into the housing market.

Lenders nationwide and locally reported a burst of refinancing applications the last week of June, including borrowers who refinanced just six months ago.

"This [refinancing] boom has far outlasted anyone's predictions," said Marc Piscitelli, regional vice president of Wells Fargo Home Loan Mortgage. "I've not seen a boom like this in my 22 years in the business."

The average rate for a 30-year fixed mortgage with one point in Southern California was 6.15% last week, down from 7.14% a year ago, according to Earl Peattie, vice president of National Financial News Services.

The 30-year low of 6.12% was posted in November 2001.

"Things are down in the stock market and that has a reverse impact on securities and mortgage rates," Peattie said. "This is the time to get qualified and check into refinancing and lock in a rate as soon as possible. I don't think it can get much lower."

Market analysts agree. Doug Duncan, chief economist for the Mortgage Bankers Assn. of America, said he doesn't expect rates to drop below 6.25% nationwide, unless investor confidence continues to erode. The MBAA's average mortgage interest rate forecast of 7% for 2002 probably is slightly higher than the actual average for this year, Duncan said.

The association is predicting a 7.4% average for 2003. The surprisingly long period of low interest rates has spurred even the most timid buyers into the home loan market, experts say.

In Los Angeles and Orange counties, for example, Wells Fargo Home Mortgage funded $541 million in total loans in May, with refinancings representing about 51% of that loan volume.

A year ago, the lender funded $461 million in total loans in the two counties, with refinances making up about 62% of those loans, said Mary Trigg, a spokeswoman for Wells Fargo.

At Countrywide Home Loans, total loan fundings were $13.7 billion in May, up 26% over the same period a year ago, according to the company's monthly report of operating statistics.

Refinancings made up about 42% of the total.

"This is completely unexpected," said Doug Perry, first vice president of Countrywide. "At the beginning of the year, we never thought we'd have such a competitive interest-rate environment."

Nationally, total mortgage loan applications the last week of June increased 24.8% from the previous week, according to the MBAA.

Refinancing applications represented 50% of the total, up from 43.6% the previous week. The average loan size was $206,500, the largest on record.

"It just doesn't get much better than this for interest rates on any loan type, whether fixed or adjustable," the MBAA's Duncan said.

Borrowers who prefer adjustable-rate mortgages, or ARMs, when interest rates are higher, are less interested now, analysts say. ARMs represent about 27% of the current mortgage market in Orange County, for example, compared with a peak of 77.4% in 1988, according to DataQuick Information Systems.

Real estate agents say that first-time buyers, especially, are benefiting from the low rates. More savvy than buyers were a decade ago, today's home seekers know that lower interest rates allow them to get more home for the dollar, said Judy Graff, a Re/Max Elite agent in Glendale.

"Lower rates are keeping first-time buyers in the market, even when they have to make five offers before getting accepted," Graff said. "They're staying in the game, rather than being scared off, as they would have in previous years."

Last summer, when rates hovered around 6.75%, a borrower would have locked into monthly payments of $1,622 on a 30-year, fixed-rate loan of $250,000, said Kris Yamamoto, a Countrywide spokeswoman.

At today's rate of about 6.25%, the monthly payment on the same loan would be $1,539, a savings of nearly $10,000 over 10 years.

Altay Ovunc, 36, a Glendale marketing manager, has decided to keep looking for a house in the Franklin Hills area of Los Angeles, despite the fierce competition from others vying for the few homes available in the higher-priced area.

The first-time buyer lost out on his dream house there recently, following a heated bidding war in which he agreed to a counteroffer of $21,000 over the asking price. He is, nonetheless, determined to hang in there.

"I'm still in the market, primarily because of the phenomenal interest rates," Ovunc said. "If I wait, the rates may go up, and the home prices too. It's better to stay in."

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