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Borrowers look for a 'taste of the bailout pie'

Would-be mortgage borrowers have rushed to refinance their loans and even weighed plans to buy homes following the government's move this week to loosen consumer lending.
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Would-be mortgage borrowers have rushed to refinance their loans and even weighed plans to buy homes following the government's move this week to loosen consumer lending.

With interest rates suddenly plummeting, "the phone is ringing, the e-mails keep coming," said Jennifer Du Plessis, a mortgage adviser at Prosperity Mortgage, the lending arm of Long & Foster. "Real estate agents are hovering outside our office saying: 'I've got another client who wants to refinance.'"

"Our loan officers were here well past midnight," Bob Walters of Internet lender Quicken Loans said regarding Tuesday, when the government announced its plan. Quicken received $400 million worth of mortgage applications that day, more than quadrupling the number of loans from the day before, he said. It was on track to meet that number yesterday, too.

Vivianne Couts, a Northern Virginia real estate agent, said one of her clients had planned to buy a house in Fairfax County this spring but yesterday sent her an e-mail saying, "Interest rates are low. I don't know what's going to happen in the future, so let's go for it."

'Taste of the bailout pie'
Almost immediately after the Federal Reserve announced plans Tuesday to buy a sizable chunk of mortgage-based securities, interest rates dropped to the mid-5 percent range and stayed there through yesterday. The move is giving borrowers a "taste of the bailout pie," said analyst Mike Larson of Weiss Research. Until now, most government mortgage initiatives have been aimed at lenders or at distressed borrowers.

Rates on a 30-year fixed-rate mortgage dropped a quarter of a percentage point from Monday to 5.76 percent yesterday -- the lowest since early February, according to research firm HSH Associates.

Lenders said most inquiries came from clients eager to refinance because they were angst-ridden about the economy or their jobs and wanted to get any savings they could find. When interest rates drop, the first borrowers to take advantage tend to be refinancers, because there's little hassle or downside.

However, whether those refinancers will actually get this week's rates remains to be seen.

Some may not have the credit scores necessary. For instance, many credit card companies have been slashing credit lines in a way that could hurt credit scores, Du Plessis said.

"If the credit card company reduces your line limit down to your balance, that kills your credit score," she said.

Given the drop in home values in many pockets of this region, others who hope to refinance may not have the home equity they thought they had. "Locking in the rate is just the first step," said Brian Bonnet, president of Signature Mortgage Services in Alexandria. "Deteriorating home values are the next hurdle."

Fretting about his mortgage
That's what worries Bob Walker, a Loudoun County resident who wants to refinance.

Walker has been fretting about his mortgage since his twins -- a boy and girl -- were born in August. He has an adjustable-rate mortgage that is due to reset in two years and he's yearning for the predictability of a fixed-rate mortgage.

He's not worried about his credit score, but he's not so sure about the value of his home.

"I've got to admit, I have no idea what my home is worth," Walker said. "It's really hit or miss. I'm fearful about that."

Would-be home buyers face additional limitations. "The reason many people are not buying homes is not that the cost of mortgage financing has gone up, but because the availability of credit has gone down," Larson said. If you can't qualify because you don't have strong credit or a big enough down payment, he said, "it doesn't matter if rates are 7 percent or 3 percent."

None of this has discouraged Tom Powell of Winchester, who has been shopping for a home in Leesburg for six months.

The area was too expensive for Powell and his wife, Carmen, a few years ago. But with home prices dropping, he thinks it's now within reach.

Powell has made not-so-serious offers on homes in the past. But Tuesday, when he got word of the interest rate drop, he made a "very serious" offer on a four-bedroom house.

"We hope we can get something done before the rates kick back up again," Powell said. "We're moving fast.'

Others were able to benefit from the lower rates with no effort at all. Mark Fegani of OlympiaWest Mortgage Group in Vienna said his office has been calling clients whose loans are already in the pipeline to tell them about the lower rates.

"Those calls are euphoric," Fegani said. "They love that, like: 'Wow, I don't have to do anything?' "

In the past few months, rates have swung wildly, sometimes within hours. Following the government's takeover of Fannie Mae and Freddie Mac in early September, rates fell, then climbed again. Some loan officers say this drop may be just as fleeting, while others say it may last a while.

It's the uncertainty that frustrates lenders and borrowers alike.

"I've got a whole slew of people on my wall here who told me: 'Call when it gets to 5.5 percent,' " said Brian FitzGerald, executive vice president of Presidential Bank in Bethesda. "So now I'm calling them, and they say: 'Do you think it's going to get any lower?' "