| Inland homeowners ponder refinance timing
Mortgage holders wanting to trade an unwieldy adjustable-rate mortgage for the certainty of a fixed rate are rushing to refinance in large numbers since the Federal Reserve's surprise rate cut earlier this week. In the past two weeks, Bank of America has seen a strong and accelerating increase in refinance applications, said bank spokesman Terry Francisco. Last week, applications were up 193 percent from a year earlier. The week before, they were up 82 percent, he said. The same is true for online brokers. "We started getting a few calls last week, but on Tuesday (when the Federal Reserve Board announced its rate cuts) it was like a tidal wave," said Jeff Lazerson, president of Mortgage Grader, an online mortgage broker. He said that most callers had adjustable mortgages scheduled to reset to a higher interest rate.
Bad-news economy is good news for some homeowners
Can there be a silver lining in the economic downturn? Perhaps. Sharp interest-rate cuts by the Federal Reserve make this a good time for home-owners to consider refinancing their mortgages. Last week's cut of three quarters of a percentage point — with another cut of as much as a half point expected this week — has put interest rates at a two-year low and close to the lowest point they've been in this decade. Thirty-year mortgage rates are dropping below 5 percent. But does that mean this a good time to refinance? "If you have a 6.75, 7 or 7.5 percent rate, this could be a good time to refinance," according to John G. Gerlach, president and CEO of Pocono Community Bank. "Anytime you have a 100 basis point spread, it's a good time to take a look at refinancing," he said.
More Risk for Fannie, Freddie?
Currently, FHA can't guarantee mortgages higher than $367,000. The plan, as outlined by Speaker Pelosi, also expands the role of FHA in assisting homeowners in trouble. In addition to raising the loan limits for FHA, Congress will permit more borrowers facing defaults to refinance through the FHA, and increase funding for housing counseling to $500 million to help home buyers who fall behind on their mortgage. Raising the loan limits should allow a larger pool of borrowers to qualify for lower-cost mortgages or to refinance existing mortgages, something that has been difficult to do since mortgage lenders pulled back from nonconforming loans. "This, along with the fact that interest rates have dropped, will give a big kick to the demand side of the housing market," said Nariman Behravesh, chief economist at Global Insight, an economic consulting firm in Lexington, Mass.
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