Economic turmoil sparks surge in mortgage refinancing
The Mortgage Bankers Assn. said that its market composite index, which is a measure of mortgage loan applications, spiked 21.7% last week over the prior week on a seasonally adjusted basis.
The bump was largely driven by refinacing, with the group's refinance index up 30.4% from the previous week. The purchase index was down 0.9% from one week earlier.
Mortgage rates tend to follow long-term U.S. Treasury bond rates, which have plummeted in recent weeks as spooked investors have sought government bonds as a haven.
"Amid substantial market turmoil last week, mortgage rates dropped to their lowest levels of the year, and refinance applications jumped more than 30% to their highest levels of the year,” said Mike Fratantoni, the group's vice president of research and economics. “Despite these low mortgage rates, applications for home purchase have remained little changed through the summer.”
The refinance share of mortgage activity increased to 75.6% of total applications from 70.1% the week prior, according to the group. Mortgage experts cautioned that falling home prices, economic stresses and tight lending standards have made it difficult for all but low-risk borrowers to take advantage of the opportunities.
But for those with more than 20% home equity, solid credit histories and secure incomes, the rates were at or near historic lows. According to Federal Housing Administration statistics compiled by the National Bureau of Economic Research, long-term fixed mortgage rates bottomed out at just under 4.1% in late 1950 and early 1951.
But borrowers this week were seeking out even lower rates. Orange County mortgage broker Jeff Lazerson said Wednesday that 30-year fixed-rate loans were available at a rate of 3.875% for low-risk borrowers who paid 1% of the loan balance as an upfront fee. (Third-party costs such as appraisals and title insurance would be additional.)
Last week, borrowers would have had to pay 3% of the loan balance to obtain such low rates, Lazerson said. Zillow Inc., the online real-estate service, also said 30-year fixed loans were being offered at a rate of less than 4%.
At a rate of 5%, a borrower would pay $2,147.29 a month to amortize a $400,000 home loan over 30 years. At 3.87%, the monthly payment would be $1,880.95 -– a savings of nearly $3,200 a year.
The lower payments are a potential silver lining for an economy that has suffered a drumbeat of negative economic news recently. The lower payments could free up some extra spending cash.
-- Alejandro Lazo and E. Scott Reckard
Photo: Rows of homes in San Francisco. Credit: Justin Sullivan / Getty Images