The mini refinancing boom now under way is being fueled by a diverse group of borrowers.
The new refinancing customers include those who couldn't refinance in 1992 or 1993. Many were held back by falling home prices in California and the Northeast.
Many borrowers with adjustable-rate mortgages, whose monthly payments either already exceed or are soon to exceed payments on fixed-rate loans, will also refinance.
And if fixed loan rates fall near 7%, even those who refinanced during the big boom of the early '90s may look for bargain rates again, according to David Lereah, chief economist at the Mortgage Bankers Association.
As much as $250 billion of refinancing loans may be made this time around, according to Mark Zandi, chief economist at Regional Financial Associates. Refinancing applications now make up 30% of all mortgage applications, according to the MBA.
Here's what experts say about the composition of the new refi wave:
ARM to fixed. The No. 1 refinancing target for mortgage bankers is borrowers who now hold adjustable-rate mortgages.
The rate on the fully indexed one-year-Treasury ARM is 8.91%, well above the 30-year fixed-rate mortgage, now available at about 7.75%. Since yearly increases on one-year-Treasury ARMs are capped, borrowers who started at around 5.5% last year won't soon by paying the full current rate, said Keith Gumbinger, analyst at HSH Associates, Butler, N.J.
But those who took out such ARMs two years ago will. And they are prime candidates for refinancing, Mr. Gumbinger said.
The 11th District cost-of-funds index, to which many California ARMs are linked, also is rising. In April, it stood at 5.06%, and along with the 2.5-percentage-point margin that most thrifts add, the Cofi rate is now about 7.5%.
That is still a bit lower than fixed-rate loans. But with fixed rates trending downward, and the Cofi index sure to rise some more, Cofi borrowers should also be watching the refinancing market, Mr. Gumbinger said.
Those who missed the boat last time. Falling home prices in California and the Northeast made it difficult for borrowers in those regions to refinance in 1992 or 1993, said Mr. Zandi, the Regional Financial economist.
This year, home prices are more stable, he said, and the Federal National Mortgage Association and Federal Home Loan Mortgage Corp. have programs for helping borrowers with little equity to refinance.
Lenders are also hungrier for business, noted Mr. Gumbinger of HSH Associates. That means refinancing borrowers who were rejected the last time around because they hadn't held a job long enough should be able to refinance this time, he said.
The cushion effect. If the Federal Reserve Board cuts interest rates a couple of times this year to cushion the current economic slowdown, said Mr. Lereah of the MBA, rates could fall near 7%.
Suddenly, borrowers who refinanced in the early part of the refinancing boom, and have coupons of up to 8.25%, would rejoin the refi pool, he said.
If that happens, Mr. Lereah estimated, refinancings would reach $230 billion during the next 12 months, about $100 billion more than he expects otherwise.