Rate Surge May Put Kibosh On the Refinancing Boom

The mortgage refinancing boom of 1991 may be coming to an end, the victim of a sharp rise in interest rates.

Rates on 30-year fixed-rate mortgages have jumpled more than 30 basis points in the past two weeks, to about 9.88%. Signs of a strengthening economy have pushed up yields on long-term bonds, and mortage rates have followed suit.

The rise, according to some analysts and executives, is reducing the appetite of borrowers to swap out of adjustable-rate loans into fixed-rate models. As fixed-rate mortgages dipped below 9.5% earlier this year, such refinancings accounted for a large portion of all mortgage refinancings.

"I would be willing to bet that the refinance boom is dead for now," said Gary Gordon, a thrift analyst with Paine Webber Inc.

ARCS Mortgage Corp., the mortgage-banking unit of Bank of New York, has seen refinancings drop to 35% of all applications from 60% a month ago, said Howard Levine, president. But total volume has held up well, he said, because demand for home-purchase loans has risen.

In view of the shift, ARCS has redirected its originations effort-stepping up its calls on realty brokers, attending fairs for homebuyers, and running seminars for first-time buyers, Mr. Levine said.

He said the rate run-up has "helped activate the purchase market" by causing potential buyers to stop waiting for lower mortgage rates. Also helping: a growing sense that home prices have bottomed out in many markets.

Still, some executives see plenty of life left in refinancings.

"I don't think a 30-basis-point increase in mortgage rates is going to kill the refi trend," said George Bender, head of nationwide mortgage banking for United Savings of Texas, Houston. "If rates went up another half a percentage point, then you'd be talking about something."

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