BRIAN KOSS
‘Typical’ seasonality

Although many thought the refinance boom had faded away, some local lenders say they are enjoying the recent influx of purchase and refinance activity. The strong market isn’t happening in just the Bay State, but throughout the country, according to the Mortgage Bankers Association’s weekly mortgage applications survey.

“[The refinance activity] just keeps coming back when you think it’s over,” said James F. Flynn, president of Hopkinton-based Marathon Mortgage.

According to MBA’s survey week ending June 10, purchase activity reached a record high and refinance volume jumped.

“[That] week there was a combination of record-setting purchase activity, as well as a substantial pickup in refinance applications, with the refinance index at its highest level since April 2004,” said Michael Fratantoni, senior director of single-family research and economics at MBA.

According to the survey, the seasonally adjusted purchase index increased by 10.4 percent – a record high – and the seasonally adjusted refinance index increased by almost 26 percent compared to the week before.

While lenders offer a few reasons why business has been strong, most say low interest rates have been the main driver for business.

“It is low interest rates, in general [that are creating more business],” said Rick Fedele, president and founder of Boston-based Summit Mortgage.

According to the MBA’s weekly survey, the average contract interest rate for 30-year fixed-rate mortgages increased to 5.62 percent from 5.55 percent one week earlier, with points increasing to 1.25 from 1.12 (including the origination fee) for 80 percent loan-to-value ratio loans.

The average contract interest rate for 15-year fixed-rate mortgages increased to 5.18 percent from 5.13 percent one week earlier, with points increasing to 1.32 from 1.11 (including the origination fee) for 80 percent LTV loans.

‘A Shrinking Industry’

Brian Koss, senior vice president of Countrywide Home Loans in Waltham, said the spike in activity was purely rate-driven and pent-up demand.

“Massachusetts is always the first [of the New England states] to feel the refi spike,” Koss said, adding purchase activity has also been solid.

Koss also noted that he wasn’t surprised by the influx of business and has noticed that borrowers are moving from the adjustable market to fixed loans.

Flynn also said rates are down creating a plethora of new business for his company. However, Flynn also said there is another reason so many people are obtaining mortgages.

“There is a lot of inventory out there,” Flynn said.

Daniel J. McMorrow, president, chief executive officer and founder of Bayside Home Mortgage in South Boston, said he saw a home with three offers on the table just a few weeks ago.

“When homes come on the market priced right, people are itching to buy,” McMorrow said.

Most lenders also have said the market in Massachusetts has been affected significantly by the weather.

“The real estate market was incredibly strong earlier in the year as a result of condo sales,” Fedele said, adding that single-family home sales became stronger as the weather improved this spring and summer.

Flynn said he has seen similar activity.

“Are people finished with graduations? Is the weather nice?” he said. “It is the strangest thing.”

Apparently it isn’t that strange to Koss, who said trade-up buyers usually become active in June in the Massachusetts area.

“It’s typical New England seasonality,” Koss said, adding that his office was prepared for such activity.

As for the strength in refinance loans, Fedele said the “stragglers” are still coming in to refinance their home loans.

While many borrowers are still interacting with their lenders, it isn’t for a new home. Some lenders said they are seeing more borrowers remaining in their homes, but remodeling. McMorrow said people want to build up their existing homes and are opting to cash out.

“A good chunk [of refinance activity is being] driven by the cash-outs,” McMorrow said.

Flynn agreed, saying people are taking a cash-out and refinancing instead of using a home equity line.

When the refinance boom was considered to be over a few months ago, many lenders waited for the fair-weather mortgage companies to close their doors. Fedele said he is “torn” about the strong refinance market because he began to see some competitors going by the wayside when things were slower.

“We were growing in the face of a shrinking industry,” Fedele said.

Koss said the industry is “overpopulated” and he is interested to see who is still standing at the end of the year.

In recent weeks, there has been attention placed on new types of mortgage products like interest-only loans, but many lenders say the strength of the market has little to do with the amount of products that are out there.

“There is a lot of talk about interest-only products,” Fedele said, adding that people think the products are driving the housing market.

McMorrow said products are not driving the refi boom. One lender said the market is being driven more by the demand for housing, and he admits there are too many products available to borrowers.

“Today there is too much product out there,” Flynn said. “[It is] just a pent-up demand.”

Koss said there are products available that are making it less difficult for certain borrowers to secure a loan.

“It’s easier to get [a mortgage] than it was before,” Koss said.

Fedele said he expects business to remain strong during the upcoming months. He noted that in the first four months of 2005, Summit had approximately $25 million in loans per week. It has jumped to about $40 million per week, and Fedele predicted that business won’t go below the $25 million mark anytime soon.

“Things are solid,” Fedele said.

Koss said because there has been more home appreciation, the recent refinance boom has been different than the one that occurred in the 1990s.

“Real estate values are holding,” Koss said, although he added that it is difficult to predict what will occur in the marketplace from month to month.

As interest rates remain low and mortgage companies continue to see strong business, lenders aren’t complaining.

“If this continues like this, this could be a very good month,” Flynn said.