By Dina ElBoghdady
Washington Post Staff Writer
Friday, January 9, 2009
Borrowers are rushing to refinance their mortgages at record low interest rates but face unexpected delays as swamped lenders struggle to cope with the surge at a time when layoffs have sharply cut staffing.
Bank of America, which started shedding 7,500 employees after its July merger with Countrywide, recently yanked 300 workers from its home equity line department to help deal with refinancing requests, said Matt Vernon, the bank's national sales executive.
Joy Siegel, a Bethesda real estate lawyer, said some borrowers have been told they would have to wait two weeks for a call back from their lenders. "That's incredible considering rates sometimes change on an hour-by-hour basis," she said.
Given the jam, Wells Fargo no longer allows its loan officers to lock in rates for less than 90 days so there's enough time to close the loans, said Bill Malkoun, branch manager at Prosperity Mortgage, a joint venture of Wells Fargo and Long & Foster.
"It's as if the entire nation woke up one morning and decided they all wanted to refinance at the same time," he said. "Sometimes I pick up one message, return that call and then find four more waiting."
Refinancing activity took off after Nov. 25, when the Federal Reserve announced it would buy mortgage-backed securities to help loosen consumer lending. Mortgage rates immediately plummeted well below 6 percent, breaking a psychological barrier. Refinance applications have soared each week since, though they tapered off around New Year's.
Bank of America and other lenders said activity has rebounded to pre-holiday levels as rates have continued to drop. This week, a 30-year, fixed-rate mortgage averaged 5.01 percent, down from 5.10 percent the previous week and 5.87 percent a year ago, according to a Freddie Mac survey released yesterday. That's the lowest since the survey started in 1971. The Fed began buying mortgage-backed securities this week, which helped push rates down.
With all the refinancing buzz, Ron Gross of North Bethesda expected to snag a great rate when he called his lender, CitiMortgage. Instead, he got a recording informing him that due to heavy call volume, his call could not be answered. "I couldn't even leave a message."
Susan Cecala of Falls Church, whose brother is an expert in mortgage finance, said she, too, could not break through the automated message systems or voice mails. She called two lenders and two mortgage brokers, who act as liaisons between lenders and borrowers.
"Bank of America even sent me something in the mail inviting me to refinance with them and when I called, they referred me to apply on the Web," she said. "I never did hear from them. Isn't that strange?"
Finally, a friend referred her to a broker who helped her refinance into a money-saving deal.
Even more perplexing than the backlog, Cecala said, were the rates she saw on some lenders' Web sites. They were far higher than she expected. "Why would they put such high rates on their Web sites if they're trying to attract people?"
The short answer: Not all lenders are trying to lure customers, said Keith Gumbinger, a vice president at research firm HSH Associates.
"You don't want to turn borrowers away," Gumbinger said. "But if you do, that's okay because you're ostensibly having trouble serving the customers you already have."
Guy Cecala, publisher of Inside Mortgage Finance, said some lenders also do not want to post the best rates because they don't want to be bound by them.
"There are so many variables that go into a rate, such as credit score and equity," he said.
The record-breaking low rates that grab most headlines apply to 30-year, fixed-rate mortgages under $417,000 that meet the guidelines of mortgage financiers Fannie Mae and Freddie Mac. Investors perceive these loans as safe because they have the government's guarantee. The average rate on those loans was 5.13 percent yesterday, according to HSH.
Far higher rates apply to loans larger than $625,500 in a few pricey markets, including the Washington area. Investors stopped buying those jumbo loans when the mortgage market soured and their rates shot up. The average jumbo rate hit 6.81 percent yesterday.
In the same expensive markets, an in-between rate can be found for loans from $417,000 to $625,500. That middle tier was created last year when the federal government tried to help pull down jumbo rates by allowing Fannie Mae and Freddie Mac to buy larger loans, hence making them more attractive to investors. The rate on these loans averaged 5.5 as of last week.
There have, of course, been points during the week when rates at some lenders have been higher or lower.
A common pitfall for many borrowers is that they chase after the lowest rate without regard to transaction fees such as closing costs or points, the upfront fees borrowers pay to reduce the rate on a loan, said Henry Savage, president of PMC Mortgage in Alexandria.
"Getting 4.5 percent with $6,000 in fees might not be better than getting 5.25 percent with no fees at all," he said.
But for those who do reach a lender and strike a deal, the rewards can be sweet.
Brooke and Alex Heiberger of Rockville refinanced from an adjustable-rate mortgage into a fixed-rate loan with the help of Devon Segal, a broker at Apex Home Loans. They were thrilled to be quoted 5.375 percent, their previous rate. But they were downright ecstatic when Segal told them that rates had dropped more. This week, they closed at 4.875 percent.
"You always wonder if you could have gotten a better deal," Heiberger said. "But that rate drop took away any buyer's remorse. We feel like the luckiest people in the world."