As Rates Dip, Calls to Banks Pick Up
Tuesday, September 9, 2008
"I guess the cat's out of the bag because everybody is calling," said Laura Triplett, a loan officer at SunTrust Mortgage in Woodbridge, who took calls from dozens of people hoping to buy homes or refinance loans. "It's the craziest day I can remember in a long while."
The average rate for a 30-year fixed-rate loan fell to 6.04 percent yesterday -- about a third of a percentage point lower than on Friday, before news of the federal takeover, according to research firm HSH Associates. On a $200,000 mortgage, that's about $500 in annual savings.
While the drop is significant, it's probably not big enough to turn around the battered housing market unless it's sustained over time, analysts said. There's a chance the dip is fleeting, and there's no telling whether people will actually go out and buy houses just because rates are lower.
At online mortgage firm Quicken Loans yesterday, applications were more than double what they have been in recent weeks, said Bob Walters, the firm's chief economist.
"Any time we see a significant move down in interest rates, there are always people on the fence who are going to come rushing in," Walters said. "But whether this is a short-term pickup or something more material remains to be seen."
At SunTrust, most of the calls were from customers hoping to renegotiate rates they already had locked in. For competitive reasons, SunTrust is trying to oblige them. "I've got people closing in October and November, and they've got plenty of time to find loans somewhere else," Triplett said. "We're not going to let anybody walk out the door if we can help it."
But no matter how far rates drop, not everyone can take advantage. Those with poor credit will still have trouble finding financing -- let alone finagling better terms for themselves.
At SunTrust, Triplett had to turn down many who called to refinance yesterday because they owed more on their mortgages than their homes were worth, she said.
As for borrowers who have missed payments or defaulted on their loans, they, too, will be out of luck for now, said Bill Mann, a senior analyst at the Motley Fool. "If you are cash-strapped and you are unable to pay your mortgage, this [takeover] doesn't change that at all."
However, those borrowers could get some relief if the takeover prompts more-aggressive programs to modify bad loans, said Kurt Eggert, a law professor at Chapman University in California and a former member of the Federal Reserve Board's Consumer Advisory Council.
Federal regulators have "a big interest in minimizing foreclosure losses, and it's not because they are on the hook for the losses, but to help the economy in general," he said.
Federal regulators have already launched a systematic loan modification program for at least 25,000 homeowners with mortgages held by failed lender IndyMac Bancorp, which was taken over by the government in July. If that effort is effective, Eggert said, Fannie and Freddie could follow that model.
But helping these borrowers or driving down interest rates was not the government's immediate goal when it took control of Fannie and Freddie, and that's what Henry Savage was trying to explain yesterday to customers who called his Alexandria-based brokerage, PMC Mortgage.
"I keep saying that what the government is trying to do is keep the flow of mortgage money available to as many American consumers as possible, not lower the interest rates," even though that's what happened, said Savage, the firm's president. "But people are so focused on the interest rates and nothing else right now. The average person doesn't know what Fannie and Freddie are or what they do."
Fannie and Freddie are the biggest buyers of U.S. mortgages, purchasing only loans that meet their guidelines. They then sell the loans as securities to investors. The money they receive is used to buy more loans and keep money flowing through the mortgage markets. The problems caused by the faltering credit markets and rising foreclosure rates pushed federal regulators to place them in conservatorship over the weekend.
Jennifer Du Plessis, a mortgage adviser at Prosperity Mortgage in Reston, said consumers right now are trying to figure out how or whether they're affected.
She sent out e-mails to her clients yesterday informing them of the changes, and she expected them to receive those notes upon coming home from work. "They'll all read that and see what happened during the day and they'll be on the phone with me first thing in the morning," she said. "It's going to be a huge day."