A rush to refinance

This week's Federal Reserve surprise - a sharp cut in its benchmark interest rate - helped push already sinking mortgage rates to their lowest levels in nearly five years.

Such numbers led to a wave of calls from consumers looking to find out whether they'll save money by refinancing, particularly those with adjustable-rate loans that will soon reset with higher monthly payments.


"It's crazy. It's like the floodgates have opened up," said Denise Shipowick, who runs 1st Primacy Mortgage Corp. in Bel Air with her husband. Their phone began ringing before 9 a.m. yesterday, and by 1 p.m., the number of pre-qualification applications in the works had doubled from last week.

Rates for 30-year fixed mortgages hovered around 5.5 percent yesterday, with some dipping into the 5.25 percent range early in the day, according to area brokers. That's just a hair above the record lows recorded in June 2003, when the housing market was flourishing.


When the Fed cut a key interest rate by three-quarters of a percentage point Tuesday, it had no direct effect on fixed mortgages. But it got consumers' attention. That, coupled with the lower mortgage rates, which have been driven down by their connection to 10-year Treasury bonds, sent homeowners on the hunt for deals.

And brokers, who until recently were fishing for business in a weakened housing market, were more than happy to welcome the attention. But they were quick to point out that the rules for securing credit have changed significantly from the boom days of a few years ago.

That's when home sales skyrocketed, lenders offered scores of subprime loans to people who often couldn't afford the bills, and mortgage professionals were so busy it was tough to get them on the telephone.

"We're having to deal with higher-credit individuals now," said Greg Rast, senior vice president of Susquehanna Mortgage Corp. in Owings Mills.

Some of his refinancing requirements include a credit score in the mid- to high-600s and no late payments on anything in the past three years. For homebuyers, add to that bigger down payments and fewer mortgage options.

Those who owe more than their homes are worth, have little to no equity in the dwelling or can't provide proof of income, are likely out of luck.

There are "some big hurdles to getting credit," said Greg McBride, a senior financial analyst at, which surveys thousands of financial institutions to determine average rates for consumers.

Yesterday, the Mortgage Bankers Association said last week's refinancing applications were up 92 percent and purchase applications were up 7 percent since early November, when 30-year interest rates were about 6.35 percent.


At Worthington Overlook Mortgage Consultants in Adamstown, Frederick County, the calls have started rolling in, and President David Pulford Jr. expects them to multiply.

"They're going to get a lot more harried as the [rate] news gets out," said Pulford, who's reluctant to assess what this could mean for business or even customers.

While some said lowering interest rates could lead to more discretionary spending and boost the economy, Pulford pointed out that it takes time to realize any savings - about 30 days to approve a refinancing and another 30 days before your new payment would be due.

"It's only part of the economic stimulation that we need," he said.

The weak economy is driving the lower rates. It pushes risk-averse investors toward Treasury bonds, nudging their prices up and yields down. That means mortgage rates, which are tied to the bond yields and typically run about 2 percentage points higher, will also be down. (Though by yesterday afternoon, a rebound in the stock market helped keep mortgage rates from sinking further).

The low rates and reportedly high call volume made some more optimistic than Pulford.


"The feeling is right now that this is going to stimulate and turn the market around. We're going to start to see some action again," said Thomas Shaner, executive director of the Maryland Association of Mortgage Brokers. "For the brokerage professional, this is an opportunity to get their business back in line."

That's how the Shipowicks see things.

They opened their small mortgage business in January 2000 and have thus far weathered the market downturn fairly well. They were able to move into new offices last year, but they're still not where they'd like to be.

"The last year and a half have not been really good in our industry," David Shipowick said. "We're ready, we're more than ready" for a turnaround.

The sentiment was echoed by others in the industry, but Jay Brinkmann, vice president of research and economics at the national Mortgage Bankers Association, was cautious.

"We can expect to see the economy get slower before it gets better," he said. "While this is a step toward the economy getting better, it's going to be a while. I don't think we hit bottom yet."


Refinancing needs

With mortgage rates falling, many consumers are considering refinancing their loans. But the requirements are different in this post-credit crunch. Some things you'll need:

Good credit, with a minimum score in the mid-600s

No late payments on credit cards, mortgages or installment plans in the past two to three years

Home equity


Proof of income