Silicon Valley To Take Advantage Of Record Low Mortgage Rates
As Originally Posted to Mercury News

Mortgage rates dropped to a record low this week, stoking a surge in refinance applications in the South Bay as homeowners look to take advantage of some of the best loan deals in nearly 40 years.

The national average interest rate for 30-year home loans fell to just 4.85 percent this week from 4.98 percent last week, Freddie Mac said Thursday. That's the lowest ever recorded by the government-backed mortgage financing company, whose data goes back to 1971. The previous record low was set in mid-January, when rates fell to 4.96 percent. Average rates are those for "conforming" loans, up to $417,000.

Experts say rates are likely to stay low for the rest of the year, perhaps providing a much-needed balm for the wounded housing market.

Even in Silicon Valley, where residents need bigger loans to buy in the area's more expensive neighborhoods, news of the low rates is spurring loan applications, local mortgage industry professionals said.

"I am busier right now than I was all of last year," said Todd Flesner, a broker with Stern Mortgage in Palo Alto, "due primarily to low interest rates and the correction in values on home purchases."

With home prices down from last year, he's got several first-time clients purchasing homes in the $500,000-and-under price range in San Jose.

Similarly, Chris Amsden, owner of Golden State Lending in Los Gatos, said he's seen a surge of loan applications in the past two weeks. Sixty-five percent are for refinances, he said, and the rest are for purchases. Most of those purchasing are seeking foreclosures or short sales, he said.

Interest also spiked as measured by Zillow.com. At the real estate site's Mortgage Marketplace, there were 7,868 requests for loan quotes from March 12-18, and 21,841 requests from March 19-25, just as rates dived to 5 percent and lower.

A lack of equity

But despite the good news about low rates, obstacles remain for many local homeowners who want to refinance. Loans are generally available only to those who have at least 20 percent equity in their homes. And with home values falling, fewer people have the equity needed to refinance. Also, while rates for conforming loans and so-called "jumbo conforming loans" ($417,000 to $729,750), are at or near record lows, rates for loans even bigger than that remain at an average of 6.66 percent this week, according to Bankrate.com.

The recent drop in rates occurred after the Federal Reserve announced plans last week to buy more than $1 trillion worth of Treasury bonds and mortgage-backed securities from Freddie Mac and its sister company Fannie Mae, in an effort to keep mortgage rates attractive and bolster the weak housing market.

Rates dropped sharply on the news last week, although they have ticked upward slightly since then. (Freddie Mac's report provides an average rate for the seven days ending Thursday.)

For borrowers willing to pay a point up front, rates for loans of up to $417,000 were about 4.75 percent Thursday, Flesner said. And for jumbo conforming, rates were about 5.125 percent with 1 point paid.

A point is equal to 1 percent of the loan's principal; some borrowers opt to pay points in exchange for lower interest rates. In the Freddie Mac survey, borrowers paid an average seven-tenths of a point on the record-low average 4.85 percent interest rate.

The Fed's announcement nearly assures that rates will stay low, said Greg McBride, senior financial analyst with Bankrate.com.

"By purchasing mortgage debt and Treasuries over the remainder of the year, the Fed is going to keep a lid on mortgage rates for the remainder of the year. Low mortgage rates for as far as the eye can see is what's needed to bring buyers back to the market," he said.

Refinance, refinance.

The mortgage market is being dominated by refinance transactions, according to the Mortgage Bankers Association. In its most recent weekly survey, for the week ended March 20, nearly four out of five mortgage applications nationwide were for refinance transactions. Refinance applications increased 42 percent compared with the previous week, the trade group said.

Arlene Allert, Bay Area regional manager for Wells Fargo Home Loans, urges homeowners to consider their long-term financial goals and research various loan products available before deciding to refinance.

"A lot of people over the last few years got into a culture of 'the rates are down, I'm going to refinance,' " she said. "A lot of people ended up in products that maybe weren't the best for them."

Allert added that the Obama administration's new refinancing and loan modification programs, dubbed Making Home Affordable, should help some "underwater" homeowners — those who owe more than their homes are worth — when the programs are up and running. She wasn't sure when Wells Fargo will begin helping customers navigate the options available through Making Home Affordable, but said the bank was "working diligently" on a process that will help customers quickly gauge whether they qualify for refinancing or loan modification.