Ross Mortgage Corp. of Oak Park, Mich., is making its customers an offer that many of them will find hard to refuse.
Customers with a conventional mortgage serviced by Ross is getting a certificate entitling them to refinance at market rates at any time for a low-ball fee of $375.
The offer is the latest in a trend that has seen many lenders offer low-cost, no-hassle refinancings to maximize business during the present period of low rates. Some have even offered refinancings with no fees but have generally raised the interest rate slightly to compensate.
"It's a wrinkle. but it isn't exactly a new wrinkle," said Keith Gumbinger, a rate analyst with HSH Associates. Butler, N.J. "Other lenders have offered low-cost deals. But this price appears to be especially attractive."
While consumers have welcomed such opportunities. investors in the secondary market have not been pleased because the ease of refinancing accelerates prepayments.
Lewis Ranieri, a pioneer in mortgage-backed securities who now heads Hyperion Partners in New York, said recently that such refinancings put the secondary market at extreme risk.
"The mortgage market cannot exist in this form," Mr. Ranieri told a meeting of financial analysts, according to a wire service report. He urged the industry to stop low-cost refinancings and quotation of multiple interest rates daily.
Brian Chappelle, a staff vice president of the Mortgage Bankers Association, said that easy refinancings are an issue in the industry, but that the demand was market driven and that efforts to reduce refinancings, such as prepayment penalties, have been unsuccessful.
The Ross deal is straightforward. By paving the $375 fee, customers get the current market rates. There are no points and no additional charges for closing costs. No appraisal is required if no cash is being taken out by the borrower.
Qualification is automatic if the homeowner has not been delinquent in payments on the existing mortgage in the preceding 12 months. There is no time limit and no limit on the number of refinancings a homeowner may do. However, both the existing and refinanced mortgages must be conventional.
Ross Mortgage has a servicing portfolio of about $400 million, mostly in the Detroit area. "As a small servicer, we are anxious to retain as many loans as we can, as opposed to seeing them refinanced by the big companies," said Timothy Ross, president.
He noted that last year, refinancings made up about 60% of the company's business, but that they had slackened in recent months. "But our.purchase business is up and now accounts for about 70% of our volume."
Mr. Gumbinger of HSH said many of the low-cost refinancings were being offered by smaller servicers who were eager to stanch the runoff from their portfolios.