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Refinancings Soar in Rush to Lock in Rates

Borrowers who were holding off scramble to secure 30-year loans at 6% or less.

March 14, 2003|E. Scott Reckard | Times Staff Writer

A surge in interest rates Thursday pushed home refinancings -- already at record levels -- into a frenzy as borrowers rushed to lock in 30-year loans at 6% or less.

Mortgage rates rose about one-eighth of a percentage point, which would add $24.18 to the monthly payment on a $300,000, 30-year fixed-rate loan. Although the dollar amount was modest, the psychological effect was huge and people who had put off refinancing decided to wait no longer.

"If they were sitting on a fence, bottom-fishing or had minor issues, it made their decision much simpler," said Ted Grose of First Mortgage Advisors in Los Angeles, who is president of the California Assn. of Mortgage Brokers. "They're committing."

On Thursday morning, Grose called a customer who had been hoping to pay 5.625% interest on a 30-year loan with low upfront costs, telling her rates were rising and could hit 6% by 2 p.m. He said if she acted immediately, he'd guarantee less than 6%.

"She said lock it up now and tell me what happened later," said Grose, who got her the loan at 5.875%.

Experts across the industry told similar stories Thursday as a record wave of refinancings continued. The Mortgage Bankers Assn. of America said its index of refinancing applications last week was five times higher than a year earlier and 29% above the previous weekly record, set in October.

When the association's board met Wednesday, the talk was of how tumbling mortgage rates early this week "had the phones ringing off the hook" yet again, said the group's chief economist, Doug Duncan. "We could set another record this week."

After falling below 3.6% in October, the yield on the 10-year Treasury note -- a benchmark for mortgage rates -- traded in a range of 3.8% to 4.3% until late last month. But as fears of war with Iraq drove more money out of stocks and into the relative safety of bonds, the yield on 10-year Treasuries sank to a generational low of 3.56% Monday.

As the government showed greater willingness in the last few days to delay an invasion and rumors spread that the Iraqi military might surrender voluntarily, sentiment changed.

The yield on the 10-year T-note jumped from 3.59% on Wednesday to 3.75% on Thursday as investors sold bonds. Mortgage rates followed.

Meanwhile, expectations that the Federal Reserve might again lower its key short-term rate have faded. At the beginning of the week, half of the experts monitored by Duncan's group expected the Fed to drop its rate another quarter-point. On Thursday, 25% expected a cut, he said. The Fed meets Tuesday.

Nationwide, the average of conventional and jumbo mortgages was 5.79% on Thursday, up from 5.67% a day earlier, according to HSH Associates, a New Jersey data firm.

Freddie Mac, the government-sponsored mortgage firm, said Thursday that the average rate on 30-year fixed mortgages this week was 5.61%, the lowest since the early 1960s.

Doug Perry, first vice president of Calabasas-based Countrywide Home Loans, said business volume was "extremely heavy" Wednesday as word of the record low rates spread, and again Thursday as rates turned around. "The uptick definitely got a lot of people off the fence and locking in," Perry said.

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