Falling interest rates create surge

PHOTOGRAPHER: James Schlett

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The past week has been something of a renaissance for Stan Len, a mortgage broker with Adirondack Home Mortgage.

Since interest rates for 30-year mortgages recently dropped below the psychological barrier of 5 percent, Len’s brokerage in Rotterdam has been churning out refinance mortgages at a rate not seen for about five years. In the past week, the five-member Adirondack office has arranged 15 home refinance deals, compared to approximately five for all of November.

“We are very busy now because the rates are lower, and everyone wants to refinance,” said Len.

The surge in refinancing activity has spread throughout the region as homeowners move to lower their monthly payments and stretch their buying power. They are taking advantage of the federal government’s recent attempts to jumpstart the recessive economy.

At the Norwich-based NBT Bank, the revival in the mortgage market has resulted in a surge of refinance applications. Over the past week, refinance applications have accounted for 75 percent of all mortgage requests, according to Joseph Culver, vice president.

“Once you get below that 5 percent barrier, that tends to be a driver for consumers,” said Culver, who is also a vice president for the Mortgage Bankers Association of Northeastern New York, an Albany trade organization.

NBT’s rate for a 30-year, fixed-rate mortgage fell overnight by half a percentage point to 4.625 percent last Wednesday — a day area brokers characterize as the best day to date to refinance. Rates crept up after reaching that low and settled at 5 percent on Tuesday.

Bank of America, the nation’s largest mortgage lender, has received twice as many mortgage applications during December than it got throughout November. About three quarters of this month’s applications come from homeowners looking to refinance, said Jumana Bauwens, a spokeswoman for the Charlotte, N.C., bank that earlier this year acquired troubled mortgage giant Countrywide Financial Services.

Last week’s stark drop in mortgage rates followed the Federal Reserve’s decision to cut its overnight lending rate for banks to near zero. While that historic cut to the federal funds rate did not directly impact mortgage rates, which are tied more to 10-year Treasury notes, Bauwens said Fed actions tend to stoke interest in home loan products.

Earlier announced Fed and U.S. Treasury Department initiatives, such as plans to purchase mortgage-backed securities issued by Fannie Mae and Freddie Mac along with long-term T-bills, have played a greater role in lowering mortgage rates, local mortgage experts said. Raymond O’Conor, president and chief executive officer of Saratoga National Bank & Trust Co., said the mortgage office line at his Saratoga Springs bank has been “ringing off the hook” since Treasury earlier this month hinted it might try to send mortgage rates down to 4.5 percent.

Even before the Fed’s actions last week, mortgage rates were flirting with historic lows. The average 30-year fixed rate reached 5.05 percent in New York for the week ending Dec. 14, compared to 5.25 percent for the prior week, according to the Zillow Mortgage Rate Monitor.

Mortgage applications for the month are also double their volumes for November at the Citizens Bank. Rates at the Providence-based bank have already dropped below the 5.25 percent low they reached during the refinance boom that ran from 2000 to 2003, said Bob Meyer, Citizens’ senior vice president and regional manager for mortgage bankers.

For the week ending Dec. 12, the Mortgage Bankers Association Market Composite Index, which measures mortgage application volume, registered at 841.4, up 2.9 percent from a week earlier. During the same period, the Washington trade group’s Refinance Index increased 6.5 percent to 4156.0. That end-of-the-year surge will help brokerages offset some losses incurred during the lull of previous months.

“It’s been slow. We’ll definitely be in the red for the year, but it should jump start us for next year,” said Denis Clyne, owner of Pro Rate Funding in Niskayuna.

But real estate agents do not share that upbeat outlook for 2009. While homeowners can quickly take advantage of the lower mortgage rates because refinancing is largely a matter of filing paperwork, buying a home is a lengthier process. Culver at NBT said rates would have to remain low for six to eight months for them to have a significant impact on the purchasing market.

James Ader, CEO of the Greater Capital Association of Realtors, called the lower mortgage rates good news for buyers, but he did not see them immediately turning around the region’s “logy” housing market.

The Colonie trade organization reported Tuesday that closed single-family home sales slumped 32 percent in November. Ader said the 5 percent “psychological barrier” is a “wife’s tale because everyone has a different psychological barrier.”