California home loan mortgage refinance

Lower interest rates spur refi queries, lenders say

For the last few weeks, phones have been ringing off the hook at Countrywide Credit Industries Inc. with inquiries from homebuyers who want to refinance their mortgages.

"It started about four months ago and became really active in the last 60 days," said Rick Cassano, executive vice president of consumer markets for the Pasadena-based mortgage banking company.

Countrywide, the nation's largest mortgage lender, is one of several mortgage banking and thrift companies which report that refinance activity has soared in recent weeks.

But lending experts say they don't know yet whether the recent jump is another refinance boom like the one that occurred in the early 1990s.

Patti Fielding, director of marketing for Woodland Hills-based Weyerhaeuser Mortgage Co., said she thinks there is a "mini-refinance boom" under way. "Business is definitely up," she said, but whether it continues depends on interest rates posting further declines.

Refinance activity also is up at Riverside-based Directors Mortgage Loan Corp., said Robert Garment, senior vice president. "At this point there is a slight increase in activity," he said. "If rates go down another percentage point, we can get into another boom again."

Sam Lyons, senior vice president at Chatsworth-based thrift Great Western Bank, said refinance activity has picked up in the last few weeks, "but it's not like it was in 1993."

Greg Mower, state legislative chairman for the California Association of Mortgage Bankers, said it is too soon to say if there will be a refinance boom.

"We are getting a lot of inquiries," said Mower, who is also chief financial officer of Sacramento-based Neighbor's Financial Corp. "But a lot of people (who are calling) are not quite ready to refinance," he added.

Refinance activity always picks up when fixed interest rates dip below 8 percent on a 30-year mortgage, said Adrian Sanchez, regional economist with First Interstate Bancorp.

Interest rates on a 30-year mortgage on June 5 were 7.56 percent, compared to 8.05 percent a month earlier, according to the Federal National Mortgage Association.

Cassano of Countrywide said last week, "Today we're quoting a 7.75 percent interest rate on a 30-year fixed rate loan."

Many Wall Street analysts think the refinance market is back, but they don't know how long it will last, said Andrew Jeffries, an analyst with the San Francisco office of Chicago-based investment finn of Rodman & Renshaw Inc.

"We don't know if we're in the front end of a boom or a boomlet," he said.

A refinance boom could boost earnings and stock price at Countrywide and other mortgage banking companies, Jeffries said. Mortgage banking companies specialize in making refinance loans and fixed-rate loans, he said.

Countrywide's earnings sagged last year and it was forced to lay off more than 25 percent of its work force when the refinance market crashed. Now company officials are considering hiring back some workers who were laid off, Cassano said.

Countrywide officials would not quantify exactly how many phone calls they were receiving.

"I can tell you the majority of the callers are interested in refinancing from an ARM (adjustable rate mortgage) into a fixed loan," he said.

Echoes of 1993

The last time that a majority of Countrywide's callers were requesting refinance loans was in late 1993, he added.

The typical caller is someone who bought a home 12 to 24 months ago with an ARM loan, Cassano said.

"They may have started with an interest rate of 4.5 percent and have had two interest rate increases and are now up to 8.5 percent," he said. "These people are wanting to stop those increases. They want to lock in the interest rate for the life of the loan."

Fielding of Weyerhaeuser Mortgage said that company is also getting calls from people who obtained adjustable rate mortgages in the last year and a half.

But other types of mortgage holders are calling as well about refinancing, she said. Some are "people who missed the boom of 1992-1993," Fielding said. "They waited and waited and waited too long."

Analyst Jeffries noted that just as Countrywide and other mortgage banks could be a winner if there is a refinance boom, there may be some losers, as well.

Would thrifts be hurt?

Savings and loans make refinance loans and fixed-rate loans, but tend to specialize in adjustable rate mortgage loans. Most only keep ARMs and sell fixed rate mortgages into the secondary mortgage market to agencies such as Fannie Mae.

In turn, if homeowners refinance those ARMs as fixed-rate loans with other lenders, the thrifts could experience a run-off.

A large amount of loan run-off is undesirable, thrift experts say, because loans are interest-earning assets. When loans disappear from thrift's portfolios, they lose asset size and earnings power.

"The savings and loans could be tremendous losers," Jeffries said. "They are the ones who made all the (adjustable rate mortgage) loans last year."

Those loans could run off the books if homeowners refinance, he said.

Mary Trigg, spokeswoman for Home Savings of America, the nation's largest savings and loan, said that thrift has not yet experienced a major run-off of adjustable rate mortgages.

But she added that it would take a while for activity to show up on the books at the Irwindale-based company. And, Home Savings is also in the refinance business, she said.

If a customer wanted to refinance a loan "they could refinance with us," she said.

Lyons of Great Western said that so far, Great Western has not lost a lot of ARMS. But it would take a few months for refinance activity which may be occurring now to register on Great Western's books, Lyons said.