Mr. Percoco: New mortgage applications for home purchases have been running about 10%-20% above prior year levels and refinancings have been running at about 4 times last year's pace. With mortgage rates dropping to about 7% recently, there has been a significant pickup in refinancing activity.
TWST: Why is that?
Mr. Percoco: It's difficult to say. Some have said that the rate
differential is only 100 basis points now, compared to 200 basis points
in the last refinancing boom in 1999.
TWST: And isn't a difference of 200 basis points generally thought to be
the rule as to when to refinance?
Mr. Percoco: That's what I believed too, but it is not correct. Savings
of 100 basis points can be justified if borrowers plan on owning their
homes for more than a couple of years. However, many refinancings may
also be driven by borrowers with adjustable rate loans looking to lock
in a fixed rate. Some refinancings may also be attributable to people
who are having difficulty meeting current payments, but it is hard to
say what proportion of refinancing activity is due to this. It is also
important to note that Mortgage Bankers Association's indexes measure
applications and not closings. There typically is a fallout of as much
as 30% on applications
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