THE GROWING AVAILABILITY of mortgages with low-closing costs, or none at all, has raised the level of refinancing, perhaps permanently.

Premium-priced mortgages -- in which all or a portion of the closing costs are absorbed by a higher interest rate -- facilitate refinancings, according to Karl Mendenhall, senior vice president of secondary marketing at First Union Mortgage Corp., Charlotte, N.C.

Mr. Mendenhall said he believes that these types of refinancings may become a fixed part of the mortgage banking landscape.

"With the advent of low-cost or no-cost mortgages, we've seen refinancings of loans only 50 to 75 basis points above current rates," said Mr. Mendenhall. An old rule of thumb was that rates must fall 200 basis points, or 2%, before consumers would refinance.

"Consumers are more aware of how the game is played," said Robert Spears, vice president of Nationsbanc Mortgage of Dallas. He said he believes that a more sophisticated consumer and the opportunity to refinance with no money out of pocket combine for a powerful stimulant to refinancings.

Premium-priced mortgages are themselves more likely to be refinanced, according to Mr. Spears, a fact which has driven up the cost of these mortgages to the consumer.

Mr. Spears reports that the margin tacked on to the coupon rate for a no-cost mortgage has risen from about 50 basis points two years ago to 75 basis points today.

Though many mortgage companies feel pressed to offer no-cost mortgages to compete, some are cutting back. First Union Mortgage won't do pure no-cost mortgages, though it does market low-cost versions.

Of course, mortgage lenders are only able to provide premium-priced mortgages with the cooperation of Fannie Mae, Freddie Mac, and secondary investors. Thus far, according to traders and secondary specialists , that support is strong.

Because secondary investors have observed that mortgage-backed securities formed from premium-priced mortgages prepay more quickly than market-rate securities, they trade at a discount relative to their interest rate.

For instance, 30-year, 7% mortgage-backed securities which should trade at 103 or 103.5 tend to bring about 102.5, according to secondary executives.

Fannie Mae and Freddie Mac, for their part, treat no-cost loans in essentially the same way as other higher paper, and have even made some efforts to aid in their securitization.

The secondary market behemoths have made it a practice to purchase excess servicing from holders or premium-priced mortgages.

The practice, known as round-ups, allows holders to sell as much as 25 basis points in excess servicing fees.

Despite the fact that there is a booming primary and secondary business in premium-priced mortgages, many in the industry feel that they represent a change for the worse.

Mortgage bankers say they believe that a permanently increased rate of refinancing will increase the cost of doing business.

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