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Mortgage Rates on Rise But Still Attractive
From Our Print EditionBy Dennis LaRueYOUNGSTOWN, Ohio -- Mortgage and home equity lenders find they can spend more time with their families this summer, or play golf or tennis, as the wave of applications to refinance mortgages has dropped to less than half of what it was a year ago.The number of applications to buy existing houses, move to condominiums and villas, and build new houses is stronger than a year ago, lenders report, as the economy picks up. Mortgage lenders are still working past 5 p.m. weekdays and coming in Saturdays, they say, but nowhere near the extent they did a year ago.The analysis of the president of Clearview Economics, Kenneth T. Mayland, is that the national housing market "will not tail off soon." Despite a modest drop in housing starts in April, down 2.1% nationally from March, "There are still a great many (near cyclical high) homes under construction, keeping construction workers employed and construction dollars flowing for a number of months," he says.What dropped off, Mayland points out, is the number of multi-family residences. Single-family dwellings rose and "permits in April inched 1.2% higher to two million units."Mayland is an economic consultant based in Pepper Pike. "Refies [refinancings] are down considerably," Sky Bank Senior Vice President Mark Witmer reports, reflecting national trends. "A year ago, 75% was refi. Today's it's 25%.Â…With refi down, we're seeing more interest in home equity loans." "A year ago, 60 to 65% of our business was refi," says Dan Plant, vice president at Home Savings and Loan Co., Youngstown. "Today it's 65 to 70% purchase and new construction has heated up."At Bank One in Akron, its vice president for home loans, Jim Stevenson, reports 80% of its mortgage business in northeastern Ohio in 2003 was refinancing. Today half of the applications his staff handles "involve purchase activity. Refinancings will dwindle as rates rise."Charter One Bank's 30-year fixed-rate mortgage went from 5 3/8% in early April to 6 3/8% early this month, typical of the increases most lenders have posted. Even so, rates hover at 40-year lows, lenders point out, and remain attractive. "Thirty-year fixed-rates are still at 40-year lows," says Lars Eller, senior vice president of mortgage lending at National City Bank, Youngstown. "The rates are still tremendous."Home equity lending -- fixed-term loans and lines of credit -- "is down 30% from the same period last year," he says, reflecting other lenders' experience. "It's a puzzle to me because we have terrific rates -- prime less a quarter [3.75%]," he continues, and surmises that it's because "most home owners have one already."When home owners refinanced, lenders made it a point to ask if they wanted a home equity product -- customers didn't have to pay closing costs a second time -- and most accepted.The Census Bureau's American Housing Survey reports 7.2 million Americans look out home-equity lines of credit in 2003, up 12% over 2002 when 6.4 million such lines were issued. Mortgage lenders would not dismiss the suggestion that nearly every homeowner who qualifies for a home-equity loan or line of credit has one, that the saturation point is not that far off. However, most think that point has not been reached.As Bank One's Stevenson points out, "If you listen to Fannie Mae [Federal National Mortgage Association], you still have 9% to 10% of homeowners who [stand to benefit but] still haven't refinanced. That is truly an amazing statistic." What may be holding that segment back, Stevenson says is that many have overextended themselves. "Say they have an 8% mortgage," Stevenson explains. "They may have taken a second mortgage [home equity loan] at a lower rate and taken out more than 100% of their equity. And so they can't refinance."Lenders with a physical presence in this market make it a practice not to allow their customers to take out more than 100% of the equity they've built up, says Peter J. Asimakopoulos, regional president of First National Bank of Pennsylvania in Youngstown. "It's our policy not to advance more than 100%. It's not right for the customer or the bank."With mortgages up a point in two months and Fed Chairman Alan Greenspan warning that general interest rates may rise more than most expect before the end of the year, mortgage originators are encouraging customers to act. "We're still as busy as ever [with existing house and new construction]," Home Savings' Plant says. "Our loan originators are still out checking references." Home Savings staff sees no decrease in the number of open houses that real estate agents sponsor, he adds.The sum financed on new construction averages $150,000 to $160,000, Plant reports. But because of the volume of refinanced mortgages, the average mortgage Home Savings issues is closer to $110,000.The time it takes to close the purchase agreement on an existing home has fallen to 30 days, Plant says, from 45 a year ago. What could slow new construction -- and stretch out how long it takes to close -- is rising lumber prices. "Builders are getting concerned with the cost of lumber," Plant says. Even so, new construction is increasing as a percentage of Home Savings' residential mortgage portfolio, much of the development occurring around Columbus and southern Mahoning County.Home Savings is also venturing into Florida as area residents move there to retire and either build or buy existing houses. "Our people are moving there and asking us to finance them," Plant says. The health of the residential market is reflected in National City Bank reporting the first quarter of this year "was one of our best quarters," Eller says, despite rates going up. "The last four to five weeks things have slowed off, from 50 to 60 calls a day [regarding refinancing] to 20."Competition among lenders remains intense with bankers offering new products to meet narrow needs. Sky's Witmer reports mortgages can be refinanced for 10, even five, years, not just the popular 15. F.N.B. of Pennsylvania also offers five- and 10-year mortgages, Asimakopoulos says, the shorter the term, the lower the rate. On average, a 10-year F.N.B. mortgage is a quarter point lower than a 15 and a five-year is a quarter point lower than a 10.F.N.B. developed and just began offering a 30-year mortgage that has the borrower pay only interest the first five years; principal is not amortized until the first month of the sixth year.Such a loan, Asimakopoulos explains, "gets them a larger house, lower payments [and] is intriguing to individuals relocating here for a period" with the expectation their employers will reassign them before they would begin to pay principal as well.With home-equity lines of credit, banks are giving their customers the option of converting part of all of the sums they've borrowed to a fixed-term, fixed-rate loan. Such financing benefits those who buy cars and trucks because home-equity rates are often below automotive finance rates and the interest paid can be claimed as a deduction on federal income taxes. A loan officer at Charter One Bank's office in Boardman, Jeff Daloise, reports "sales of condos taking off" in two of the communities he serves, "Poland and Canfield, mostly." Demand for existing houses and new construction "has held steady," the volume of mortgage refinancing "about half what it was last year," Daloise says. "It's still a buyer's market, rates being as low as they are," he adds. The drop-off in refinancing volume, he says, has translated in Charter One getting to those applicants more quickly, an experience echoed by other lenders.As far as sales being slowed by would-be buyers having to sell their houses before they can commit to a new house, bankers point out the extensive use of bridge loans. Bridge loans allow the buyer to carry two mortgages -- that on the house up for sale at a greatly reduced rate -- until the old house is sold."Bridge financing is available," Bank One's Stevenson says. "Most houses are selling within three months, not six to eight months. So people are not afraid to put a house on the market."Contact Dennis LaRue at [email protected] "