RISMEDIA, Feb. 12, 2008-(MCT)-Thousands of Midlands homeowners are joining the nationwide refinance scramble to lower their monthly payments or pay off their loans more quickly.
“I’m just trying to stay on top of the phone calls and the requests we’re getting,” said Jana Siemonsma, a mortgage loan officer for Omaha State Bank.
Wells Fargo Bank has hired people to handle a volume that lenders say has doubled since December, similar to the national trend. TierOne Bank in Lincoln is shifting other staff members’ duties to process refinance applications.
“It really began at the first of the year, when people got out of their holiday slumber and started seeing that interest rates were coming down,” said Damon Riehl, who moved to Omaha recently from Connecticut to become a consumer lending vice president for First National Bank.
Some things are different from the last refinancing burst in 2003, when rates were even lower.
Although most home values in the Midlands continue to increase modestly or at least hold steady, the average home sale price in the Omaha area during the fourth quarter of 2007 was down from a year earlier, according to real estate industry figures. A few homeowners might be “upside-down” in their home financing, with mortgages higher than the home values.
But that’s rare, bankers said.
The Federal Reserve said last week that many U.S. banks have raised credit standards, making it harder or more expensive to refinance.
The tightening is in response to foreclosures and payment problems in some parts of the country, especially among people who took out high-interest, subprime loans because they had poor credit or low incomes.
Refinancings are strong because of the sharp drop in interest rates since early December, triggered mostly by falling bond rates in response to volatility in the stock market.
First National’s January volume was up 89% from a year ago, February closings are expected to be double the number in January, and First National’s goal this year is to double its 2006 mortgage lending, Riehl said.
The favorable refinancing market may continue.
“If the economy continues to slow down and we move into a recession, if we’re not already in it, and rates continue to stay where we are or slip a little further, then I think we will continue to see fairly heavy refinancings,” said Doug Alford, a mortgage executive at TierOne.
The savings can be substantial, even for people whose mortgages are only a few years old, the lenders said. Among refinancing options:
—Borrowing the same amount of money at a lower interest rate, thereby cutting monthly payments and reducing interest costs over the life of the loan.
—Switching to a shorter-term loan and keeping monthly payments the same, to pay off the mortgage quicker.
—Borrowing more than the original loan and using some of the new loan proceeds to pay off other debts, known as a “cash out” or “equity release” transaction.
—Switching from an adjustable-rate mortgage to a fixed-rate mortgage.
—Combining an old mortgage and a home equity loan into a single mortgage at a lower rate.
Stew Larsen, executive vice president of Bank of the West’s Omaha-based mortgage division, said about 60% of recent refinancing loans are aimed at reducing or fixing interest rates and the other 40% are “cash out” loans.
Jeff Garrett, Nebraska and Kansas sales manager for Wells Fargo’s mortgage division, said home prices and appraisals have not dropped in the Omaha area as much as they have in some other parts of the country, such as northern California.
“Overall we’ve seen good value in our area,” Garrett said.
Mortgage interest rates can change quickly. Ryan Shoemaker, a mortgage planning specialist, said rates hit a low of 5.1% for about four hours on Jan. 23 and then bounced back up to the current 5.6-5.8% range.
“It can change in a gnat’s eyelash,” Alford said.
Homeowners with sizable mortgages — $200,000 or more — can save money if they can shave off at least half a percentage point. Borrowers with smaller mortgages also may find it worthwhile, since current rates may mean as much as a full percentage point savings.
The key is to reduce payments so that within a year or so the homeowner can recover the fees charged in the financing process, which generally run between $1,200 and $1,600 in the Omaha market.
Lenders can charge for applications, credit checks, title searches, appraisals, taxes, document preparation, inspections, title insurance and other factors, and in some cases attorney fees may be necessary.
Streamlined loan packages aimed at existing customers with good credit can eliminate many of the fees, but tighter credit standards have limited the number of streamlined loans, bankers said. Lenders also have cut back sharply on 100 percent financing plans.
Some borrowers may find their homes appraised at less than they would like, First National’s Riehl said. “They used to be in a market where they were getting appreciation like clockwork.”
But application denials because of low values are rare, he said.
Nationwide, refinancing activity is the highest since early 2004, according to the Mortgage Bankers Association in Washington, D.C, although the volume is still about half what it was in mid-2003.
“There were a lot of loans originated between 2005 and the end of 2007 at rates around 6.5 (percent), maybe even 6.8,” said Jay Brinkmann, who heads the association’s economic research group. “Any time you have a half point or three-quarters of a point move, that’s when people start looking at refinancing and locking in a lower rate.”
Even if you don’t call your lender, you might be hearing about refinancing options.
First National’s Website soon will have a “rate watch” feature. A customer feeds in the desired rate, and the bank automatically sends an e-mail when the rate occurs.
Loan officers like Omaha State Bank’s Siemonsma have a lower-tech way to contact clients.
“I’ve got a list,” she said. “They’re very receptive. They remember me, and they’re happy to refinance if they can save some money.”
Copyright © 2008, Omaha World-Herald, Neb.
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