Refinancing surges as mortgage rates dip below 4.5%

?A surge in mortgage refinancing applications last week is likely to create a bump in lending activity, but only for as long as mortgage rates hold below the 4.5% level, analysts say. “For lenders, when mortgage rates take a drop like they have, especially when it involves record lows, the phones ring off the hook,” said Greg McBride, a senior financial analyst with Bankrate.com. An investor flight to quality in the wake of the downgrade by Standard & Poor’s of the country’s credit rating is pushing yields on Treasury bonds, and consequently, mortgage rates, down near record lows. The average interest rate on a 30-year, fixed-rate mortgage fell this week to 4.32%, down from 4.39%, according to Freddie Mac. The lowest rate recorded by the company’s primary mortgage market survey was 4.23% in October. Consumers are looking to take advantage of the decline by refinancing. Applications for refinancing jumped more than 30% this week to their highest levels of the year, and over the past month, refinance application volume has risen by 63%, according to the Mortgage Bankers Association. “What’s prompted this surge in applications is that mortgage rates got below a key threshhold,” McBride said. “Mortgage rates have been below 5% every week since April, but we saw the surge in applications in August because rates dipped below the 4.5% mark.” Will the rise in applications translate into a higher lending volume? David Crowe, chief economist for the National Association of Home Builders, said the members of his organization are struggling with sales because many buyers can’t get approved for loans. “Credit conditions have not eased up as much as the administration would like and sometimes even as much as the few surveys would suggest,” he said. The Federal Reserve’s most recent survey of senior loan officers shows that lending standards for prime mortgages have remained steady while about 10% of banks tightened standards for nontraditional mortgage loans. “We hear from our builder members that even when they do get an interested buyer, they often fail to complete the contract because they can’t get financing, the appraisal doesn’t meet the agreed-upon price, or if the buyer is a current homeowner, they can’t sell their prior home,” Crowe said. McBride’s outlook is more positive. “Lending will go up,” he said. “Three out of four mortgage applications are getting approved, so this idea that nobody can get a loan is off base.” Still, McBride cautions that lending activity will likely take a hit when conforming loan limits reset lower in October. “Anybody in the market who’s subject to seeing the limit drop and putting them into the jumbo mortgage arena should act now in order to get their refinancing closed by Sept. 30,” he said, Write to Liz Enochs.