Just a few months ago, banks and mortgage lenders declared the refinance boom officially over.
Not so fast.
A wide swath of banks said on third-quarter earnings calls this week that they are seeing big increases in refi applications, sparked by falling interest rates.
Fifth Third Bancorp said daily refi volume had jumped 90% in the past few days from $20 million to $38 million. BB&T reported a 30% increase in refinance volume over just two days. SunTrust Banks, Huntington Bancshares and First Republic all reported higher refi activity as well.
Interest rates on 30-year mortgages, which typically move in lock-step with the benchmark 10-year U.S. Treasury notes, fell below 4% this week to their lowest level since June of last year.
Granted, the uptick has only been for a few days but bankers already can barely contain their excitement. Refinancings dropped off a cliff for many lenders earlier this year, falling 60% to 70% from a year earlier.
SunTrust's chief financial officer, Aleem Gillani, practically gushed when he said refinancings were up 80% in just two days, which he called "very significant."
"Will this be a refinance boomlet?" Gillani asked on a conference call with analysts. "I don't know, but certainly we'll have a lot more conversations and we'll look at our portfolio to determine how much marketing we want to do, how much spread between what's in the portfolio and where current rates are. We've got good math and good diagnostics around that and we'll figure it out."
William Rogers, the chairman and chief executive of SunTrust, said it is unclear how long the wave will last.
"I am not ready to quantify at this point until we got a few weeks under our belt," Rogers said Friday. "Will this be a refinance boomlet? We don't know."
Katherine August-DeWilde, president of $46.2 billion-asset First Republic Bank in San Francisco, said refinances made up just 39% of home loan volume in the third quarter, with home purchases at 61%.
"Generally, when there is a decline in the stock market, we see a pause in [home] purchase activity," she said. But "we see an uptick in refi activity and we usually get more than our share."
Mortgage rates are now below 3.97%, down from 4.12% in early October, according to Freddie Mac. In July, Freddie's chief economist, Frank Nothaft, announced that the last refinance boom was "officially" over at the end of the second quarter. Overall refinance activity has drifted below 50% of industry originations since then.
Mortgage brokers have pounced on the drop in rates by actively calling homeowners to drum up business, said Paul Miller, a managing director at FBR Capital Markets.
"If rates stay at this level, we could see a refi boomlet but probably not a full refi boom," Miller said.
Of course, prior declines in interest rates have not boosted refinance activity because so many borrowers have already refinanced. But the latest rate move below 4% could open the spigot.
Scott Buchta, head of fixed income strategy at Brean Capital in New York, said many borrowers that have not refinanced in the past two years now have an incentive to do so. He expects an addition $200 billion in loans could be refinanced at these levels.
It remains unclear whether banks have cut staffing levels to such a degree that borrowers may not see the lowest possible rates. Lenders often use a tried-and-true strategy during refi booms of lowering rates less than they have to so they don't get inundated with calls.
"Capacity constraints should soon kick in, making a 3.75% rate much harder to come by than 3.875%," Buchta said.
When rates drop, the pipeline of loans in process increases in value, but fewer loans end up closing as applicants seek lower rates from other lenders.