Refinancers See How Low They Can Go

Shortly after making his first payment on a refinanced mortgage in June, John Cammiso learned the cost of credit had just gotten cheaper. With lending rates trimmed, he acquired a lower-priced loan. Then in early August, as financing for homes tumbled to record levels, he found another loan charging even less interest.

“Why pay more than you have to?” said Cammiso, who is changing mortgages for the third time in three months. “I might as well save the money.”

Cammiso is one of a growing number of homeowners who have redone their mortgages more than once in the last year. In searching for a bottom rate, they have played a key role in creating one of the largest waves of refinancings in U.S. history.

Financing costs have been edging down for almost a year, the longest period of decline in decades. The long window of opportunity, contrasting with a few weeks at best in previous cycles before rates rise, has produced a crop of borrowers who have become known in the industry as “serial refinancers.”

“A number of people have refinanced more than once in a year, and you see that pattern more as mortgage rates have come down lower than people expected,” said Frank Nothaft, chief economist at Freddie Mac, a major investor in secondary mortgages.

The trend is far more prevalent in high-priced states such as California, where even a modest change in mortgage rates might create a useful savings for borrowers. But switching loans so often does raises eyebrows, especially in lower-cost areas where the savings from slight changes in rates may not amount to the daily cost of a cup of coffee.

“Some people might say, ‘Why would anyone do that so often? They’re crazy,’ ” said Doug Perry, vice president at Countrywide Credit Inc. in Calabasas. “But these are normal people trying to take advantage of falling rates, as unique as that behavior may sound.”

At Discount Funding Associates Inc., a mortgage company in Sacramento, the majority of clients refinancing homes have refinanced at least once before within the last 90 days, said Christopher Fontenot, the office manager. He has eight borrowers who have taken the unusual step of ordering their forms to be processed if long-term rates drop to 6%.

Typically, he said, borrowers seek mortgages that require no out-of-pocket cash, even though such loans don’t command the lowest interest rates. In some cases consumers end up reducing their payments as little as $25 a month, about the price of a fancy lunch in downtown Los Angeles.

But when Fontenot asks clients--some of whom live in upscale homes and earn salaries of more than $100,000 a year--whether they want to conserve what amounts to pocket change, he said, “the answer usually is yes.”

Fontenot suspects their motivation is probably nothing more than the satisfaction of squeezing costs to the last dime. “They say, ‘I just want to get that lower rate. I gotta have it.’ ”

Homeowners in previous decades were married to their mortgages because rates were flat or rising. But since the mid-1980s, as credit rates fluctuated and consumers grew wiser about money matters, refinancing became increasingly common.

Besides falling interest rates, analysts said there are several reasons that about one of 10 households are expected to refinance their home this year. Housing prices have jumped nationwide to record highs, giving homeowners more equity that can be tapped for spending.

And the lending process has grown more automated, making credit risks easier to assess. Such efficiency lowers lenders’ costs, making refinancing rational even with a slight cut in mortgage rates. And there is far more awareness of rates through aggressive marketing by lenders and media reports.

“I definitely think the propensity to refinance is greater across the whole population than in the past,” said Doug Duncan, chief economist at the Mortgage Bankers Assn. of America, an industry trade group. If current trends continue through year’s end, he said, about one-third of mortgage debt would have been refinanced since 1998.

Figures on how often each household swaps mortgages are not available. But a computer analysis of trends reveals the rate of borrowers repaying mortgages early has risen sharply, suggesting a refinancing surge.

In California, consumers traded in home loans in June from a year earlier at 34.7%, or about 22% higher than the nation as a whole, according to LoanPerformance, a San Francisco firm that tracks mortgage trends.

No one projected the biggest booms for refinancing would occur in back-to-back years, accounting for more than $2 trillion combined. But the rush to refinance, while creating stellar profits for the industry, has stretched to the limit lenders, appraisers and others involved in the process.

So widespread is demand that even online brokerages are straining to process paperwork. At Home Loan Center Inc., which opened in Irvine about six weeks ago, early projections have been blown away. The company wrote $130 million in mortgages, triple its expectations, during its first month in business.

“I’ve never seen anything like this,” said founder Anthony Hsieh, whose former lending company was acquired by E-Trade. “It’s like walking into Las Vegas and the slot machines are spitting out coins.”

Launched with seven employees, Home Loan has soared to 92 staffers, putting the company far ahead of plans. To attract skilled workers, Hsieh offered signing bonuses of $7,500.

Lenders say they are seeing two main types of borrowers. Some opt for shorter-term mortgages, perhaps 15 or 20 years, which raises mortgage payments but builds equity faster.

Others, like Cammiso, want to reduce monthly charges as much as possible, which is often achieved with mortgages that remain at fixed rates for several years and then turn into adjustable-rate loans. “No-cost” loans, as they are known, have been a primary draw for borrowers.

Cammiso, who sells metal-finishing parts, tracks borrowing costs while driving along Southern California freeways planning his next sales pitch. He spots billboards with digital readouts showing the latest rates. He listens to lenders boasting on talk radio. The 43-year-old has changed his home loan five times in the last two years, cutting his monthly payment by about $200 and never paying a fee.

If he can shave as little as one-eighth of a point from his old mortgage and put about $30 more a month in his pocket, he’s tempted to lock in the lower rate.

Family members have been stunned by his success, Cammiso said.

“They’re surprised you can get that much of a better rate in a short period of time,” he said. “They say, ‘Really, you can do that?’ ”