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With a 21 percent spurt in applications in mid-August, lenders say they are seeing signs -- maybe fleeting, maybe not -- of a refinancing revival.
Fixed 30-year mortgage rates in the 5.25 to 5.75 percent range with minimal points "are definitely pulling a lot of people back into the market," says Jay Brinkmann, vice president of research and economics for the Mortgage Bankers Association of America.
Many of the applicants are consumers who bought new homes within the past two years at fixed rates in the 6.25 to 6.5 percent range, according to Brinkmann.
"These people are looking at refi incentives of more than 60 basis points," he said, "and they are jumping at the opportunity."
But a substantial percentage of late-summer refinancers are also homeowners who are equity-rich -- thanks to high appreciation rates in their markets -- and who see fixed rates below 6 percent as a golden chance to extract spendable dollars from their properties at a modest fixed cost.
Surveys by Freddie Mac and the MBAA say cashouts now account for two out of every five refis. But lenders who specialize in refinancings say the proportion is much higher -- 60 percent and above.
At some heavily advertised online mortgage origination sites, cashouts are approaching 70 percent of all refi applications, according to GMAC Residential chief operating officer Ralph J. Hall.
"Ten-year Treasury rates have dropped by 40 basis points (in recent weeks)," said Hall, who oversees all of General Motors' home finance and banking subsidiaries. "When you can get 5.5 percent for a 30-year fixed with zero points, or 4.25 percent for a 5-year hybrid ARM, that is pretty attractive."
Freddie Mac deputy chief economists Amy Cutts Crews says that rates below 6 percent open the door to a far larger universe of potential refinancers than most people might imagine. That's because approximately 44 percent of all American homeowners have mortgages with rates between 6 and 8 percent. Thirty-three percent of those owners are paying note rates up to 7 percent; another 11 percent have notes between 7 and 8 percent. One percent of all homeowners are still paying in excess of 9 percent.
Cash-out refinancers already have pulled more than $72 billion worth of equity out of their homes so far in 2004, according to Cutts. They are doing so, she suggests, not because they are debt junkies, but because they increasingly see their home equity and mortgage as centerpieces of their household financial management strategies.
When they need $40,000 to invest in a business venture, or $30,000 to make a downpayment on a vacation home, they look to their home equity. If their loan-to-value ratio is low, they feel they can prudently add some debt onto the house at near-historic low fixed rates. Alternatively, they can take out a home equity loan, at low but variable short-term rates.
For many homeowners, the attraction of fixed long-term rates below 6 percent is too good to pass up. And from the late summer refi revival underway, thousands of consumers are apparently not passing it up at all.
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