Homeowners refinance at lower mortgage rates

When state employee Tim McManus of Sacramento peers into the future, he sees 4.5 percent interest.

"I'm hoping it will go down more. One more drop," says the Pocket homeowner with a first mortgage at 6 percent and a second at 7.75 percent.

Sacramento's Debbie Fernandez has already locked in at 4.875 percent. That will knock $300 a month off payments for a house she bought in Houston in October. The rate then was 6.25 percent.

But Fernandez, a nurse, is still shopping.

"I hope we can do better."

Roseville tech worker Robert Gage is also waiting for the right moment to refinance.

"I can get 4.5 percent for two points," he said. "I'm hoping for 4.75 percent with no points. That's what my goal is."

As 2009 opens, the "refi" chase is on in neighborhoods across the country and across the region.

This new suburban sport was launched by mortgage rates that in recent weeks have fallen to lows not seen in almost four decades, offering potential to shave millions of dollars in debt from Sacramento-area households. Thirty-year fixed rates are suddenly floating in a zone of 5 percent and below – before fees – bringing a rush of curiosity and applications, area mortgage brokers, bankers and credit unions say.

It's still not clear if lenders will be as willing to play the game as borrowers. Tightened credit rules, diminishing home values and other economic factors will have a big effect on how many actual refinancings take place.

But the flood of interest is already stressing an industry that has been greatly downsized over the last two years. Nationally, it could be overwhelmed by a deluge of refinancings, said Jim Paterson, partner and broker at Gold River-based Mortgage Consultants Group.

"There will be a period when rates drop, a true drop in rates, when it will take longer to get a loan," he said. "It will add two weeks to the process."

Government moves markets

The catalyst is Federal Reserve action to buy $600 billion in mortgage debt from government mortgage giants Freddie Mac and Fannie Mae, analysts say. The government intervention aims to make mortgage funds cheaper and more plentiful to help revive the nation's battered economy.

"All of our channels, the Internet, call centers and branches are experiencing significant increases in application volume," said California-based Bank of America spokeswoman Jumana Bauwens.

The push is prompting the bank to shift 300 staffers from its home equity operations to mortgage lending, she said.

Chico-based Tri Counties Bank is also seeing "a big pickup in refinancing," said Chief Executive Officer Rick Smith. "As these rates have hit sub 5 (percent), everyone seems to want to come in."

Yet for all the reported frenzy, it's still too early to tell if there is – or will be – a 2003-like refinance "boom," said Terry Halleck, president and chief executive of Sacramento-based The Golden 1 Credit Union.

"The past couple of weeks, applications have gone up about 300 percent from a year ago. It's huge. The real question is whether people will complete the loan or are just rate-shopping," she said.

The lack yet of a real boom is partly because many homeowners still believe rates may go lower as the economy weakens. And unlike 2003, many borrowers won't qualify for today's tightened credit rules.

"I had to jump through every hurdle on my loan," said Fernandez, who is moving back to Houston. "They're really scrutinizing people."

Other owners also lack adequate home equity to refinance. And today's lower rates only apply to loans under $474,950 in most of the region.

But so many homeowners are browsing, Halleck said, that Golden 1 is starting an application fee "to filter out the people who aren't serious."

That's not the only problem for lenders in a volatile rate environment. Paterson said lenders are also seeing a rash of people "breaking" or walking away from their rate locks as a better rate comes along.

That can cost a lender $800 in "hedging" costs on a $200,000 loan, he said. Halleck said Golden 1 doesn't generally allow people to break their locks because of the cost.