Tuesday, Apr 24, 2018
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Drop in mortgage rates spurs local, U.S. financing boom

That's because they were able to slice their finance rate to 7.125 percent from 8.625 percent for their 30-year loan.

The change will save them $176 a month, helping to justify the $1,350 closing costs on the refinancing.

“We really had no choice but to refinance,” said Mrs. Watkins. She said the family may go on vacation with the savings.

Refinancings are back in swing nationwide because of the substantial drop in mortgage rates in the last year. Bank of America Corp., the largest U.S. bank in terms of deposits, said recently it is hiring 200 employees to help staff its mortgage servicing centers.

Lenders in northwest Ohio and southeastern Michigan are paying staff overtime to work nights and weekends, as well as using staff from other operations of the bank, to handle the volume.

Half to three-fourths of the home loans at many lenders are refinancings.

“Psychologically, it's amazing what happens when the rates come down,” said Lee Dunn, president of Charter One Bank in western Ohio. A year ago, he added, rates were 8.75 percent for a 30-year fixed-rate mortgage.

Mortgage applications jumped 7 percent and dollar volume rose 12 percent in March from February, and the bulk was from refinancing, he said.

“We are calling it a refinancing boom,” said Dave Warner, a spokesman for the Washington-based Mortgage Bankers Association of America.

The group estimates that 60 percent of home loan applications made the week ending March 23, the latest for which figures are available, were refinances. That's up from the prior week and nearly four times higher than for the same week a year earlier.

Mortgage rates have declined since May, typically in reaction to expected rate cuts by Alan Greenspan and the Federal Reserve Board. The Fed has trimmed the loan rate to banks to try to bolster the slowing economy.

Nationally, 30-year fixed-rate mortgages averaged 6.91 percent last week, about the same as the week before but far below the 8.23 percent of a year ago, a survey by Freddie Mac found.

The national averages typically include points, or fees to get such a favorable rate, but local lenders last week quoted 30-year loan rates of 7 percent to about 7.375 percent with no points.

As a real-estate agent with the Danberry Co. Realtors of Toledo, Ken Steingraber follows interest rates pretty closely. That's why he moved quickly when he was able to refinance recently to 7.125 percent on a 30-year fixed-rate loan. Just five months ago he moved into a newly constructed home in Oregon with a variable-rate loan that has a current rate of 7.875 percent.

“We are of the mindset that we prefer to have a fixed rate,” said Mr. Steingraber, the father of two sons. “We're probably a little more conservative than others, but our first home that we ever bought in 1985 had a 10.25 percent interest rate, so we knew we could definitely live with a rate anywhere near 7 percent.”

He estimates the savings at about $100 a month, or nearly $100,000 over the term of the loan.

“Rates have dropped from 8.5 percent at the high point last year to down under 7, so the activity is going to continue,” said Robert Van Order, the chief economist of Freddie Mac, the second-largest buyer of U.S. mortgages.

Local lenders said that, although home loan rates typically are lowered at least a week ahead of any action by the Fed, most consumers wait until the Fed acts.

“The risk that people run in trying to catch the bottom for interest rates is that the rates might spike upward,” said Ralph Vinciguerra, vice president of the Northern Ohio Investment Co. in Sylvania.

Refinancings are up substantially at his company, he said, resulting in overtime for some staff.

Michael Rose, executive vice president of Sky Bank in Toledo, said the regular staff of 35 mortgage lenders has grown to 100, as everyone in the bank - including tellers who do some of the processing work as well as branch managers who usually focus on small-business and consumer loans - has been recruited to handle loan applications. This year's first-quarter volume is about equal to three quarters last year, he added.

“We work these people pretty hard, but we're not a company to hire and then lay off when the boom slows,” he said.

Many lending officers are paid on commission, so the more they sell, the more they make, while hourly workers who put in more than 40 hours are paid time and a half, he explained.

All Sky lending agents are encouraged to keep a list of prior customers to call for refinance business if rates drop even half a percentage point, with a lot of emphasis put on moving customers from perhaps a 30-year loan to a 20-year or even a 15-year loan, said Mr. Rose.

“You can keep the payment the same but you can save eight years in payments,” he said.

Estimating that refinanced loans accounted for about 55 percent of all mortgages last week, Bob LaClair, vice president of lending at Fifth Third Bank of Northwestern Ohio, said, “We're probably handling three times the volume of a year ago.

“I think over the last couple of months, a lot of people were sitting on the fence and they just felt it was time to move.”

To meet the demand, the bank's mortgage staff of 36 averaged 10 to 15 hours a week each of overtime pay.

Chuck Junod, area manager for six northwest Ohio locations of the Des Moines-based Wells Fargo Home Mortgage, said the mortgage industry is reluctant to add staff.

“It goes back to 1994, when a lot of people were hired because there was so much work, and then they were all let go when things slowed,” he said.

Now, lending agents largely work on commission, so the more work they get, the more they make, he explained.

Mr. Junod's Toledo office has had about half refinancings and half new mortgages, compared with 70 percent new loans and 30 percent refinancings a year ago.

Lenders locally and nationally said refinancings - and new loan activity - will continue throughout the year.

Mr. Warner, of the national mortgage bankers group, said there was an all-time high of $1.5 trillion in mortgage originations in 1998, half of which were refinancings. The group this year expects $1.48 trillion in loans, with 41 percent being refinancing.

“We expect that if 2001 continues the way it has been for the first three months, we'll come close to those 1998 numbers again, making it the second best year for lenders,” he said.

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