Refi madness: Surge continues as rates edge lower still

With mortgage rates near record lows, homeowners are applying to refinance their loans at the highest rate in seven months, the Mortgage Bankers Assn. said Wednesday.

The volume of refinancings jumped 17% last week as the average contract rate for a 30-year fixed mortgage sank to 4.80% from 4.83% a week earlier, the mortgage trade group said. It was the highest volume since October, according to the group's weekly report on home loan applications.

Refinance applications had begun to surge two weeks earlier as global investors worried about the European debt crisis fled to the perceived safety of U.S. Treasury securities. That drove down the yield on Treasuries and mortgage rates followed, as they generally do.

Although the latest surge is powerful, it doesn't compare with the tidal wave of refinancings that took place after December 2008, when the Federal Reserve, battling the fierce recession, first lowered its benchmark interest rate to nearly zero.

That burst of replacement home lending continued as rates bumped lower until September 2009, when 30-year fixed-rate loans dropped below the 5% threshold for the first time in decades, recalled Stew Larsen, head of mortgage banking for Bank of the West.

There are still plenty of homeowners with higher-rate loans who have never refinanced despite several opportunities since then to lock in rates starting with a 4, he said.

"Many of our customers now feel they missed a couple of other windows," Larsen said.

In contrast to the latest refinance boom, applications to purchase homes fell further after a sharp decline the week before. The refinance share of mortgage activity was at 72% of total applications, up from 68% the previous week and the highest refinance in the survey since December 2009.

Industry observers said any home purchasers who could do so completed their transactions by the end of April, when federal tax credits expired for people buying houses.

It will be worth watching to see if purchase lending picks up again without the federal stimulus to spur sales.

-- E. Scott Reckard