U.S. home-loan refinancing surges

Borrowers rushed to refinance their existing home loans last week as interest rates fell to their lowest point since early December, the Mortgage Bankers Association said today.
The banking trade group's seasonally adjusted index of refinancing applications surged 15% for the week ending March 2. Demand for new home loans, however, was up just 1%.
Borrowers were encouraged by rates on 30-year fixed-rate mortgages that sank last week to 6.04%, down from 6.16%. Fixed 15-year mortgage rates averaged 5.73%, a drop from 5.84%. Rates on one-year adjustable-rate mortgages, or ARMs, decreased to 5.79% from 5.92%.
A year ago, the rate for 30-year fixed mortgages was above 6.3%.
The refinance share of applications increased to 46.1% from 43.2% the previous week, and the ARM share increased to 21.4% from 21.1%.
The mortgage bankers' survey covers about 50% of all U.S. retail residential loans. Respondents include mortgage banks, commercial banks and thrifts.
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Safer than stocks Mortgage rates dived last week in large part because panicked investors were looking for safer places to park their money after former Fed Chairman Alan Greenspan spooked the stock market by mentioning the "R" word -- recession. Greenspan said it was "possible" the U.S. could fall into a recession later this year.
"You've got a whole 'flight to quality' thing here, where people are exiting stocks and riskier kinds of issues," says Bob Walters, the chief economist for Quicken Loans, told Bankrate.com. "People are dumping their money somewhere safe."
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Backed into a corner Boom years in housing encouraged many to borrow well beyond their means to pay, with loans that encouraged such behavior with "teaser" rates that reset a few months or years later to something more realistic. Now, such marginal buyers are faced with much-higher loan payments at the same time prices have stagnated or even fallen in many areas of the country
Mortgage bankers believe a steady influx of homeowners will refinance their nontraditional mortgages into something less exotic in 2007. A lot of them will refinance into 30-year fixed-rate mortgages, watching for opportunities to buy when rates take a dip.
Others will get hybrid ARMs, such as the 5/1 ARM, which has a relatively low introductory rate that lasts for five years, then adjusts annually thereafter. Hybrid ARMs are popular among people who expect to sell their houses within a few years.