Posted by admin in A sharp plunge in U.S. mortgage rates prompted a rush to refinance, resulting in record-setting business Tuesday at Livonia-based Quicken Loans and big days for other lenders.
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Following government efforts to unfreeze consumer credit, U.S. mortgage rates dropped Tuesday to 5.5% on average for a 30-year fixed mortgage after starting the day at 6.38%, according to Bankrate Inc. It was the biggest one-day drop in at least seven years, according to one analyst.
Rates rose a bit Wednesday — Bankrate reported a 5.81% national overnight average — but interest remained strong for new loans.
Many homeowners may find refinancing out of the question or end up sweating out appraisals since home values have fallen dramatically in the past year. But the immediate reaction Tuesday and Wednesday demonstrated pent-up demand for better loans in a depressed real estate market.
“We had people not leave until midnight to get back to everyone,” said Bob Walters, chief economist at Quicken Loans, who said the number of applications Tuesday was quadruple the normal volume and the largest single day of applications in the company’s history.
Most were refinances rather than new home loans, he said.
“Over time, this will assist in clearing the market,” Walters said. “But it doesn’t solve it overnight.”
Robert Van Order, an adjunct professor of finance and real estate at the University of Michigan, said much of the interest likely came from those waiting to refinance higher-rate loans.
“That suggests that there have been people who are waiting for rates to drop,” Van Order said.
Van Order called the rate drop a strong reaction to the Federal Reserve’s pledge Tuesday to purchase up to $500 billion in mortgage-backed securities and $100 billion in direct debt of Fannie Mae and Freddie Mac, the world’s two largest mortgage buyers, and Federal Home Loan Banks.
Savings to pay other debt
Eric Dudek, 30, of Grand Rapids was among those waiting for this kind of news. Dudek, an engineer at a Grand Rapids auto-parts supplier, had contacted Heritage National Mortgage in Grand Rapids about refinancing. Pava Leyrer, Heritage’s president, put him on a watch list and contacted him when the rates dropped.
“They watch the rates more closely than I do,” said Dudek, who has been in his home for 1 1/2 years and is trading in a 6.8% rate for 6.25%. He estimates that will put about $80 a month more into his wallet — money he will use to pay off student loans.
Leyrer said the great rates lasted for a short window Tuesday. She locked in three loans in one hour Tuesday before rates started moving up.
Rates remain pretty good, however, and she expects it might spur more purchases or refinances “on a very small scale.”
Robert Rahal, president of Birmingham-based Shore Mortgage, said Tuesday that his rates dropped from the high 5% range to the low 5% range — which could equate to savings of tens of thousands over the life of a mortgage.
“It makes everything more affordable. It should allow some people on the fence to jump in,” Rahal said.
But it doesn’t change the economic conditions that have held many buyers back, said Randy Repicky, branch manager for Johnstone & Johnstone realtors in Grosse Pointe Farms.
“It’s going to take a heck of a lot more than this,” said Repicky. “So many people are strapped.”
