Mortgage lenders are reporting a surge in refinancing inquiries from borrowers because of the recent drop in interest rates.

The jump appears to have begun last week-when the Mortgage Bankers Association refinancing index rose to 1,209.6, from 1,120.7 the week before-and intensified as worries about the Japanese yen sent shudders through U.S. financial markets, pushing rates sharply lower.

PNC Mortgage's refinancing volume was "up significantly" on Monday and Tuesday, according to Saiyid T. Naqvi, president and chief executive officer. "As the 10-year (Treasury rate) has started approaching the 5.40% mark, we've seen renewed interest in refinancing."

The volume of phone calls at HomeSide Lending, one of the nation's top originators and servicers, was 40% to 50% above normal levels, according to Kevin Race, the company's CEO.

Partly as a result of Asian economic worries, Treasury prices rose last week, pushing rates lower. The yield on the 30-year bond closed at 5.57% Monday, down from 5.78% the week before, while the 10-year Treasury yield fell to 5.35%, from 5.57%.

The refinancing surge could well run out of steam as quickly as it began. The long bond was at 5.75% late Wednesday, compared with 5.65% Tuesday, on news that the Federal Reserve was backing the Japanese currency. (See story on back page.) But the spurt of refi activity illustrates how sensitive the mortgage business is to events in other parts of the globe that affect U.S. interest rates.

Indeed, the surge in prepayments was enough to spook mortgage securities investors, who lose income when customers refinance and prepay loans that have been securitized. (See story on this page.)

The downward trend in rates was enough to inspire a rash of inquiries from increasingly savvy mortgage customers. But lenders said it remains to be seen whether refi volume will climb back up to the levels seen in January, when the MBA's index reached 3,115.8.

For that to happen, interest rates would have to fall to levels "equal to or slightly better than where they were in January," said Peter Wissinger, managing director of consumer lending and servicing at Norwest Mortgage.

"What you're getting now is anybody who missed the last period of refinancings in January," as well as borrowers with adjustable-rate mortgages looking to lock in low rates, Mr. Race said.

At Norwest, the largest originator and servicer of residential mortgages, call volume in the last few days was up 30% from the previous month, Mr. Wissinger said.

Norwest's application volume is also up, he said. But Mr. Wissinger stressed that his company is seeing more gains in loans to purchase homes than in refinancings of existing loans.

"Purchases will be a bigger percentage of the overall volume we originate over the next three months," he said. "There's a larger percentage of purchase interest than refi interest, but refinancing will be signficant."

Some mortgage company executives are skeptcial about the chances for refi-mania resurfacing anytime soon.

"If rates fall significantly from here, another 25 basis points, I could see another significant refi surge, but I don't think rates moving another 5 or 10 basis points from this level will generate another refi surge," said Luke Hayden, an executive vice president at Chase Manhattan Mortgage unit.

He noted that over the last week the share of Chase's total applications accounted for by refinancings rose only slightly, to 48%, from 45%.

"When there's a surge, typically well above 50% of your volume is refinancings," Mr. Hayden said.

But even if refi activity does not rise to the phenomenal levels seen earlier this year, media hype about lower rates could still trigger more inquiries and applications, mortgage executives said.

The so-called "media effect" "hasn't fully played into the equation (yet)," Mr. Naqvi said. "We don't have TV shows saying what a great time it is to refinance again. That's going to come. We'll see much more media attention.

"We'll see the same kind of surge we saw at the beginning of the year. As the mass media picks it up and the average person on the street becomes aware of the massive rally in the market, they will go to the mortgage companies and say, 'How about giving me a low rate?.'"

"Usually it takes a few days or a week for consumers to hear the messages," Mr. Wissinger said, "so there is a little bit of a delay. When the media starts reporting, when CNN, CNBC, and the big newspapers have picked it up, it's almost instantaneous from there."

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