Interest-rate drop spurs frenzy of refinancing calls

LOS ANGELES — Homeowners deluged mortgage brokers with calls this past week, hoping to take advantage of sharply lower interest rates to refinance into cheaper loans.

Countrywide Financial, the United States' biggest mortgage lender, said call volume jumped by at least 50 percent over the week before. Independent brokers such as John West of Orange County, also said their phones didn't stop ringing.

"In 20 years in the business, I have never seen rates fall this far this fast," West said. "I think lenders are really going to have to gear up. None of us were ready for this."

The frenzy was triggered by the Federal Reserve's surprise decision Tuesday to slash its benchmark lending rate to 3.5 percent, from 4.25 percent. That pushed rates on some 30-year, fixed-rate loans to as low as 5.125 percent, down from 5.5 percent the previous week and from 6.3 percent a year ago. Including the add-on fees known as points, West said that a homeowner with a $400,000 loan at 6.5 percent could cut that mortgage rate by a full percentage point. That would trim the monthly payment on a 30-year loan from $2,528 to $2,271 — a savings of $257.

Not everyone will benefit from the Fed's action, however. Rates on fixed-rate "jumbo" loans (those exceeding $417,000) have barely budged from about 6.5 percent.

Moreover, an appraisal must confirm that borrowers have at least 20 percent equity in their home after the refinance — a requirement that will exclude many struggling homeowners who have seen their properties decline in value.

The beneficiaries of the rate cut include mortgage lenders themselves, who have been battered by the housing slump and by rising defaults, especially on 100-percent-financing deals and subprime loans to borrowers with feeble credit.

Neil Gitnick, president of Value Home Loan in the Woodland Hills district of Los Angeles, said his business had doubled from year-ago levels in recent weeks, following previous mortgage-rate declines, and that he recently hired four loan officers and a loan processor, boosting his staff to 25.

"We are using this market to grow," said Greg Nierenberg, the company's branch manager.

"We are hiring new loan officers on a regular basis. We are recruiting."

Business was also up at Countrywide, which agreed to a $4 billion takeover by Bank of America this month after posting a $1.2 billion loss for its most recent quarter.

On Tuesday, the volume of incoming calls jumped 50 percent above a week earlier "and all indications are that today we are even busier," Dave Doyle, the head of Countrywide's call centers, said Wednesday.

He said the only time he could recall rivaling it was in June 2003, when interest rates bottomed out after a series of rate cuts following the Sept. 11 terrorist attacks.

Countrywide staffers also were busy making sales calls to customers, trying to persuade them to refinance billions of dollars in tricky nontraditional loans into plain mortgages the company could sell.

"This may signal a return to simpler times for mortgage lending," Doyle said.

"The transactions we are helping with are refinancings to lower the payment and switching adjustable-rates to fixed," he said. "It's also a good time to reduce the term of the loan — some people can drop from a 30-year mortgage to a 25-year or 20-year loan and see their payments stay about the same."