refinancings in recent months, may soon be enjoying a full-blown boom. The Mortgage Bankers Association of America said its index of applications to refinance home loans stood at about 600 last week, the highest since the boom year of 1993. A year ago, the index was at about 125. With loans to buy homes in a gradual long-term rise and refinancings surging, lenders have much to smile about this holiday season. Indeed, some forecasts suggest that 1996 could be the second or third best year on record. And lenders are ready for increased volume, having expanded staffs and facilities during the previous boom. The outlook is for continued strength in both refinancings and loans to buy homes. Experts say the prospect of some form of balanced federal budget agreement, along with a likely budget-linked easing of credit by the Fed, means interest rates should stay low for the foreseeable future. Last week's MBA application survey showed that 37.9% of all applications were refinancings. That number had fallen below 20% in the 1994-95 slump. "We are entering a refi boom," said David Lereah, chief economist at the association. In the last two months, rates dipped to a low of 7.6% the week of Nov. 10, down from the current cycle's high of 8.2% in mid-August, according to HSH Associates, a real estate information provider in Butler, N.J. The last time refinancing volume was this high was in the beginning of March 1993, Mr. Lereah said. Rates would have to drop significantly for those who refinanced during the last boom to refinance again, Mr. Lereah said. But current rates are conducive to refis by holders of adjustable-rate loans and borrowers who purchased homes in 1994. "If interest rates drop another 20 to 25 basis points, it would open up a whole new world for people with rates at 8% and 8.5%," Mr. Lereah said. A rate drop of that magnitude would make $500 billion in loans ripe for refinancing, he said. According to Mr. Lereah's outlook, rates could continue to decline. If rates drop in 1996 to 7% and hover there, Mr. Lereah projects total originations for the year will be around $828 billion, making it the third- biggest year for originations after 1992 and 1993, the previous boom years. Patrick Yoder, marketing director for CoreStates Mortgage Services Corp., agrees with the economist's prediction. He is currently experiencing a spate of refinances and plans to go after even more. CoreStates Mortgage Services Corp. is "very aggressively" contacting customers whose loans it services to offer them refinance options, said Patrick Yoder, marketing director for CoreStates Mortgage. And the effort is paying off at the Perkasie, Pa., unit of CoreStates Financial Corp. "We definitely see an increase in prepayments or payoffs" that lead to refinancings, Mr. Yoder said. CoreStates, which services more than 25,000 mortgages, is taking a proactive approach to capture potential refinances from its servicing customers. Mr. Yoder said they want to contact CoreStates servicing customers before rival lenders' marketing efforts succeed in getting the refinances. To do this, the company is making deliberate contact with certain servicing customers. CoreStates is only contacting customers with interest rates two or more percentage points more than current rates. Otherwise, refinancing does not make sense, Mr. Yoder said. Customers can then book a new loan with CoreStates at the lower rates, and save prepayment costs, Mr. Yoder said. "We want to make sure there is an advantage to the customer to refinance," he said. Other lenders say they have not felt a boom of any great magnitude, but rather a smaller wave of refinances. "I would call it more of a mini-boom," said Tom Trotter, president of Wachovia Mortgage Co. The Winston-Salem, N.C.-based lender has seen a steady increase of refinance activity since the beginning of the year, Mr. Trotter said. Adding to the recent refinance activity is the large number of borrowers with B and C loans who have improved their credit over the last few years. These borrowers are now looking for loans with the lowest rate they can qualify for, he said. The spurt of activity is a welcome addition to the fall and winter months, which tend to be slow, Mr. Trotter added. "The refinancing activity is helping to sustain our volume right now," he said, with 30% of all lending activity being refinances. Most refis are with borrowers who purchased homes in late 1994 and early 1995, he said. Rick Cossano, executive vice president at Countrywide Funding Corp., said he has seen a steady flow of refinances for the last three months, but nothing resembling a boom. When told of Mr. Lereah's prediction of a refinance boom on the horizon, Mr. Cossano said, reflecting the thoughts of the battered industry, "I sure hope he's right." Karen Talley and Heather Timmons contributed to this report.

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