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News: Analysis & Commentary: HOME MORTGAGES

BACK TO THE BANK

Two years ago, Jim Riedel found mortgage manna--a one-year adjustable rate, starting at 4.5%, on his house in Seal Beach, Calif. The problem: Rates went up, and so did his mortgage payment. With his rate scheduled to hit 8.5% this month, Riedel made another trip to his mortgage broker--and came home with a loan locked in at 8% for the next five years. His savings: $140 a month. "I thought it made perfect sense," he says.

The refinanciers are back, lured by a drop in the going rate on a 30-year fixed mortgage from more than 9% in January to 7.5% in some parts of the country on June 6. A month ago, refinancings represented 11% of total loan volume; now they're at twice that level, according to the Mortgage Bankers Assn. "It's night and day between now and a year ago," says Michael P. Hindman, a mortgage broker in Houston.

Refi madness it isn't--at least not yet. In 1993, when 30-year fixed rates dropped to 6.8%, a 20-year low, consumers refinanced their homes to the tune of $555 billion, 55% of all mortgage issuances. This year, the MBA expects refinancings to reach a relatively modest $126 billion. If 30-year rates fall to 7.5% nationally, says MBA chief economist David Lereah, refis could hit an annual rate of $231 billion.

JUMPING IN. Most of the demand, brokers say, is coming from homeowners who took on adjustable loans last year and now face their first annual rate increase. "A year ago, people thought these were the best thing since sliced bread," says Philip E. Lipp of Allwest Mortgage in North Hollywood, Calif. "Now their adjustables are higher than market rate."

Indeed, the effective rate on a standard 30-year, fixed-rate mortgage at Countrywide Credit Industries Inc., the country's largest mortgage banker, is now 7.9%. That's well below the 8.6% effective rate--the rate Countrywide figures a consumer will pay, on average, over the life of an annually adjustable loan starting at 6%.

Also feeding the market are homeowners who missed the 1993 refinancing boom. By the time Jim and Sandi Price decided to refinance their Chicago home two years ago, rates already were climbing back up. "I wondered if I would ever get another opportunity," says Jim, an advertising copywriter. Bingo: In May, the Prices found a 30-year mortgage at 8.25.%. This time, they grabbed it.By Nanette Byrnes in Los Angeles, with Ann Therese Palmer in Lake Forest, Ill.


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