Since January, mortgage brokers nationwide have seen record numbers of home loan applications.
While that might sound like good news for the distressed housing market, the rush to mortgage isn't an indication that home sales have significantly improved. Instead, the glut of applications is coming from homeowners seeking to refinance existing mortgages to take advantage of low interest rates.
According to business and financial news site Bloomberg.com, the average rate on 30-year fixed mortgages was about 5 percent in January. That means borrowers who can refinance could save a bundle over previously higher rates.
As a result, the tide of mortgage applications nationally hasn't been this robust since 2003. CRBJ asked around to local area mortgage professionals to see whether this trend is playing out in coastal communities.
Northwest Lending Group
Greg Cross is branch manager for Northwest Lending Group in Astoria. He said it's true that mortgage applications are up around the region. But here, as well as nationally, there's a catch.
"I am seeing that, but not to the extent that it could be," he said. "Because the value is not there."
The value Cross is referring to is the appraised value of people's homes that can be lower now than when they originally purchased.
Other factors, like a low down payment, also may not leave them sufficient equity to justify refinancing. So homeowners who haven't paid down their principal substantially may still owe more than their home is now worth.
He cited the example of buyers whose house was worth $330,000 when they bought it, but the home is now appraised at only $310,000 in today's depressed market.
"The other piece of the puzzle is the restructure of Fannie Mae and Freddie Mac," he said. "There are brand new fees which are more spendy and can make it not worth doing a refinance."
He said the easiest mortgage to OK these days is the first-time buyer with decent credit. Buyers who qualify for government programs can also get a good deal right now.
Almost nonexistent, Cross said, are mortgages for investment and rental property, and second home "jumbo" loans (loans valued above the maximum loan amount established by Fannie Mae and Freddie Mac).
That means that while many people are applying for refinancing, not everyone comes away with a new mortgage. But some do. That's putting pressure on loan underwriters, who've been gearing down in a slow market.
"There are enough homeowners refinancing to create a terrible turnaround time with underwriters, because they have laid off office staff," Cross said.
While loan turnaround times in the past were just a few days, Cross said it's taking weeks now to get paperwork completed. Some lenders are requiring a second appraisal, which takes more time.
And while home sales have picked up slightly over the past three months, "It's the most difficult I've seen it since the mid '80s," he said.
Essential Mortgage Loan Services
Harry Staples is with Essential Mortgage Loan Services in Astoria. He said some applicants are benefiting from refinancing at lower interest rates. But he concurred with Cross.
"This round of refinancing works," he said. "But someone has to have substantial equity because of the drop in values."
Staples said EMLS does its most robust mortgage business in the northern part of Clatsop County, as opposed to the south county area.
"In Cannon Beach, there are an awful lot of affluent people," he said. "Mortgage rates don't really affect them because they buy homes for cash."
But to the north, people are more likely to be seeking financing for large purchases like homes.
"Our clients are fishermen, lumbermen, people who put their pants on every day and go to work," he said. "Those are 90 percent of our clients."
Staples said applicants can still get mortgages, but credit guidelines are tighter now.
Home sales are up slightly, but not enough to call it a turnaround.
"We will know we've bottomed out when the purchasing picks up," he said.
Bank of the Pacific
Lorna Batt is a home loan representative for Bank of the Pacific in Ilwaco. She's noting similar trends in Washington.
"We've seen rates get really low and we've had a lot of people wanting to refinance," she said. "But we can't do the loan if the appraisal doesn't come in high enough."
She said some people who are refinancing are looking for more than just a lower interest rate.
"Some are refinancing because they had a first mortgage and took out a home equity line of credit and want to combine the two," she said.
But there are also other applicants, some with plenty of equity and different reasons for wanting a loan reasons fueled by the financial crisis.
"We are seeing people refinancing and taking cash out," she said, "For no specific purpose except to have it around. They want that money sitting there."
Batt said there may be a little light at the end of the housing market tunnel, but it's too early to say.
"We have seen an increase in the purchase of homes," she said. "It started around the first of December."
She said keeping interest rates low may get buyers interested. But buyers are also watching house prices to see how low they will go.
"Home values have dropped," she said. "And what has sold, has sold for a lower price especially over the past six months."
The times they are a changin' fast
Since CRBJ first started following this story, the seesawing financial market has shifted once again. National trends now point to a bottoming out of the mortgage refinance boom, a consequence of lenders realizing that loans are hard to come by, along with rising unemployment (see sidebar).
Local mortgage professionals said they're seeing signs of a shift, but not as dramatic as on the national scene.
Greg Cross with Northwest Lending Group said that as of the end of February mortgage applications were still coming in at a fast rate, but he's seen signs that lenders are further tightening credit restrictions.
"This is an ever-changing industry and now more than ever the changes are coming," he said.
Lorna Batt of Bank of The Pacific said that while refinancing apps are tapering off somewhat, her office is still busy.
"We get a lot of phone calls regarding rates," she said, adding that potential applicants seem to be holding off for the moment in the hopes that interest rates will fall further.
She said money is available for qualified borrowers who are employed and have sufficient income and a decent credit score.
Evolving mortgage application rate reflects economy woes
When CRBJ first interviewed local mortgage brokers at the end of January about the glut in refinance mortgage applications, it was evident that many people were applying, but few were making the cut.
By mid-February, word had evidently gotten around. In the face of tighter lending restrictions, the falling value of homes in the down market, and mounting job losses application numbers that jumped in January began to sink in February.
According to Marketwatch, a Web publication of Dow Jones, Inc., mortgage applications have leveled off and begun to drop, as interest rates on fixed-rates mortgages also fell.
In the first week of February, the total volume of mortgage applications fell a seasonally adjusted 24.5 percent compared with the week before, according to the Mortgage Bankers Association.
Applications to refinance existing mortgages fell 30.3 percent the same week, and mortgage applications from people seeking to purchase homes dropped almost 10 percent.
That left applications at their lowest level since November, according to business and finance news service Bloomberg.com
That decline forced the MBA's purchase index to its lowest level since the end of 2000. The MBA is a national association representing the real estate finance industry.