American homeowners, banks approach 'once-in-a-lifetime' refinancing field day

By David Henry

NEW YORK - U.S. mortgage borrowers may soon be able to refinance at rates even lower than they were on the heels of the country's recession a decade ago, in what industry sources are calling a "once-in-a-lifetime'' chance to slash monthly housing expenses.

Rates for standard 30-year mortgages are poised to fall below 3 percent, a level not seen in more than half a century, analysts said.

Those rates tend to hover around two percentage points above the yield on 10-year U.S. Treasury notes, which have fallen sharply due to coronavirus fears, and were trading around 1.086 percent on Monday.

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Most Americans with conventional mortgages now pay 3.5 percent to 4 percent and will have an opportunity to shift into cheaper loans if the trend holds up.

"Assuming bond rates remain where they are now for the next month or so, we're going to see potentially once-in-a-lifetime mortgage rates,'' said Guy Cecala, publisher of Inside Mortgage Finance. ``This would open up just about everybody to refinance.''

Lower mortgage payments would bolster consumer finances, which could mitigate damage from any disruption to the economy caused by the coronavirus. The disease has spread to at least 53 countries, including the United States, and caused more than 3,000 deaths.

The trend could also be a boon for major players in the U.S. mortgage market, including Quicken Loans Inc, Wells Fargo & Co, Bank of America Corp and JPMorgan Chase & Co.

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The mortgage business slowed meaningfully for big lenders in 2018 as the Federal Reserve was raising rates from rock-bottom levels it set during the crisis. But the central bank had to reverse course last year, cutting its benchmark rate target three times due to economic concerns.

As coronavirus fears have amped up, Wall Street economists are betting the Fed will have to ease rates even further, starting this month.

The coronavirus' threat to the economy makes experts doubt that people will take advantage of low rates to buy homes. But those who already have mortgages at higher rates will certainly try to refinance them, Cecala said.

"We're definitely going to get a refinancing surge,'' he said. "The question is, 'How big?'''

DEMAND SWINGS

Big swings in mortgage demand have caught lenders unprepared over the past decade, with too few or too many employees to handle applications at various times.

The industry staffed up to handle a peak of $1.2 trillion of refinancings in 2012 when rates on 30-year mortgages fell to 3.3%, the lowest in more than five decades.

"It is hard to flex up capacity rapidly as rates move,'' said Serhat Oztop, a senior mortgage executive at JPMorgan Chase. "That continues to be a constraint on the industry.''

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The Mortgage Bankers Association is revising upward its forecasts for refinancing because of the plunge in bond yields, said Joel Kan, an economic and industry forecaster for the trade group. The MBA had been forecasting $670 billion of refinancing this year, down from $800 billion last year.

Whether lenders can handle a new refinancing wave depends on how sure they are that rates will remain low, and how quickly they can staff in a tight job market.

"As an industry, we are trying to react but at the same time be cautious about how long the refi wave might last,'' Kan said.