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Brief 'Boom' Of Mortgage Refinancing Over Quickly

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The Associated Press

Published: September 18, 2008

NEW YORK - Homeowners rushed to take advantage of last week's drop in interest rates following the government's takeover of Fannie Mae and Freddie Mac, but rates are rising again on investor fears over the eroding conditions in financial markets.

A miniature refinance boom started last Thursday but ended early Monday, said Pava Leyrer, president of Heritage National Mortgage in Michigan. The average rate on a 30-year, fixed rate mortgage was 6.14 percent on Wednesday, up from 6.02 percent last week after the government bailed out Fannie and Freddie, according to HSH Associates.

"We've had three rate changes in an afternoon and not for the good, either," Leyrer said Wednesday.

Last week, applications by homeowners looking to refinance their mortgages spiked 88 percent, according to the Mortgage Bankers Association. Refinances accounted for nearly 52 percent of all application activity, up from 36 percent the previous week, the trade group said.

The volume of purchase applications also edged up last week by 5 percent.

Although the number of applications soared last week, the approval rates will likely be low because the appraisals for many homes are coming in close to or below the amount of the existing mortgages.

"A lot of applications won't end up in closing because the value is no longer there," said Ritch Workman, co-owner of Workman Mortgage in Melbourne.

Even if a homeowner has 10 to 15 percent equity in a house, he or she will have to pay for private mortgage insurance, which probably will eclipse any savings from a refinance, Workman said.

Nationwide home prices dropped a record 15.4 percent in the second quarter, according to Standard & Poor's/Case-Shiller's U.S. National Home Price Index.

In many once-hot markets such as Las Vegas, Los Angeles and Miami, prices have fallen 25 percent or more, making it nearly impossible to refinance into a more manageable home loan.

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