Rate Cuts Attract Nibbles But Spur Some Prospects To Look for Better

Mortgage bankers cheered last week when the bond market rallied, bringing interest rates to the lowest level in a year.

But lenders are noticing expressions of interest in home mortgages rather than an actual increase in applications. One lender even said the drop in rates was adversely affecting her pipeline.

Interest rates for a 30-year fixed-rate loan dropped below 8% for the first time in a year, according to a survey by the Federal Home Loan Mortgage Corp., or Freddie Mac.

"They say timing is everything, and the timing could not be better," said David Lereah, senior economist at the Mortgage Bankers Association of America. Spring is usually the best time of year for home sales.

But Mr. Lereah said he does not think the attractive rates will last, and said he expects the Federal Reserve Board to raise rates again at the end of the summer.

Besides possibly being short-lived, the lower interest rates are not necessarily good news for all lenders.

The quick decline in rates has caused some borrowers to walk away from the table right before closing, said Sandy Sicilia, vice president at National Westminster Home Mortgage Corp.

"They think they can go across the street for a better deal," Ms. Sicilia said.

Another lender said he has seen some increased interest in home mortgages, but is concerned about the long-term implications of low rates.

At Integra National Bank, Pittsburgh, there has been some interest in refinancing and some increase in activity, but nothing significant, said Thomas J. Finnegan 3d, executive vice president.

He said he was concerned about the sharp decline in interest rates, in some cases below 8%, and said a large fluctuation in interest rates was not desirable, even if the movement is down.

"We would like stability at whatever level," Mr. Finnegan said. "It's the wild swings that give us problems" because Integra services loans as well as originating them, and could lose more loans to prepayments than it originates.

One lender even said last week's rate drop was too sudden for it to be immediately beneficial to business.

At First National Bank of Chicago, the pickup in originations started in early April and has been steady ever since, said Jack Eastman, vice president.

"It's happened so fast," Mr. Eastman said of last week's drop in interest rates, "no one has really noticed." But, he said, the company has prepared its staff for a possible "little refi bubble."

"When people catch on to this, they will refinance their ARMs," Mr. Eastman said.

At Marine Midland Mortgage Corp., Buffalo, N.Y., there has been more interest from potential borrowers than actual applications, said Robert E. Roth, president. There has been more contact with potential homebuyers with real estate agents on the retail side of the business, Mr. Roth said.

"There is a pent-up demand for potential homebuyers who missed the refi market and are now taking advantage of the attractive rate environment," Mr. Roth said.

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