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Show The Salt Lake Tribune Sunday March 20, 1983 F5 Mortgage Rate Declines Causing Explosion in Home Buying By Don G. Campbell Lou Angeles Times Writer Refinancing Relief Arrives Just in Time To Hold Off Foreclosure for Thousands Very much as predicted within the money Industry, the precipitous decline in real estate interest rates that began last summer has seen both a resurgence of g activity and a parallel explosion in refinancing. All of it was triggered by a collapse in money rates that has seen first trust deeds tumble from historic highs in the 16 percent to 17 percent range down to the 12 percent to 13.5 percent level, and the rate on association began keeping records there is precious little comfort for Californians in the knowledge that at least two other areas are worse off Washington, D.C., with a foreclosure rate of 1.19 percent and the state of Illinois, with a rate of 1.6 percent.) Both new financing and refinancing have surged and while the argument can be made that refinancing is merely so much huffing and puffing the churning of money that creates no new wealth or new jobs it is a badly needed churning that brings with it the promise of a return to normalcy for a market that was on its deathbed a few short months ago. Volume Soared A typical turnabout can be seen in the volume of business reported by the Hammond Co. during the first nine troubled months of 1982, which averaged about $34 million a month. But, according to Thomas T. Hammond, president of the Newport Beach, Calif.-base- d mortgage banking institution, this jumped to $54 million when rates started declining in October and then soared to $94 million in both November and December. At the bottom of the trough, last August, volume had slumped to about 00 million. Of the increased volume, Hammond adds, about 45 percent of it is in refinancing. At Great Western Savings & Loan refinancing again accounts for about 45 percent of all loan volume, and at Aames Home Loans a mortgage brokerage spe in 1951 (And home-buyin- second-trus- deeds plummeting t from the percent to 20 percent 13 percent to 15 18 stratosphere to percent. It has real significance, lenders say, if it is viewed as a life preserver, coming in the nick of time to save the homes of thousands. For many others, however, it is nip and tuck, the relief coming, perhaps, too late. California Problems In California, for instance, according to Warren Matthews, senior economist for the Mortgage Bankers Association in Washington, 6.06 percent of all outstanding home loans in the final quarter of 1982 were past due, and 0.94 percent of all loans were seriously delinquent (90 days or more). Nationally, in the same time frame, 5.7 percent of all home loans were delinquent, 0.83 percent seriously so. And the break In interest rates has clearly come too late for many those homeowners already in foreclosure. In California, Matthews adds, a historically high 1.04 percent of all home loans outstanding are somewhere in the foreclosure mill more than twice the national average of 0.67 percent, which is also the highest level recorded since the cializing in home equity lending about 40 percent of currert transactions are in the refinancing of first and second trust deeds. Refinancing Heavy In some areas, however, refinancing as a percentage of all lending as in activity soars even higher the case of the small Old Towne Mortgage Brokerage firm in Laguna Beach, Calif., where vice president Tom Stevens puts refinancing at about 80 percent of current lending activity. The Veterans Administrations assistant loan guaranty officer, Gary Schmidt, attributes about 30 percent to 40 percent of the VAs current loan processing home prices that has occurred in the last two years. Jest Walking Away $100,000-$200,00- purchased one or two years ago virtually the only equity existing in was effectively wiped out them Since lenders, traditionally, will refinance only up to 80 percent of the soned At judgment Great Western CRD3Bli33e000 to refinancing. For the better part of two years, balloon notes short term, interest-only, obligations (coming due and payable in three to five years) were the key element in creative financing, without which an estimated 80 percent of home sales ir 1 II ii would simply not have been possible. Collecting Houses It was apparent to us, Ham- mond said in an interview, that if we didnt get these loans refinanced down to more manageable rates, the people who had bought homes were going to have real problems and lenders were going to end up getting a lot of houses back. sic Underlining the danger even more, the mortgage banker warns, d was the likelihood that homeowners would be unable to do so because of the disinflation in W--' hard-presse- - ' Its? v ' - i "... is STORAGE PACKAGING EQUIP. Surge at Denver's Penny Stock Market Monorails Cranes Conveyors Filling Equipment Slings ABSOIIIM 6 WEEKS Racks SAL, Ralph says, most of the accordrefinancing applications are indeed for ing to loan officers the purpose of meeting immediate cash needs, presumably balloon notes coming due. And, with the Hammond Co., President Thomas Hammond notes, about 50 percent of the refinancing is for the purpose of getting out of a financial hole. Some Encouragement Still and all, the lenders queried report, there are encouraging signs' that normalcy is, indeed, returning to the market. Rivet a spokesman 33 S73H? (MUife G2 CGB SBC? PRODUCTION Holsts zero-equit- With housing prices having tumbled 10 percent to 15 percent in the Ham$75,000 to $100,000 range, mond says, and from 25 percent to 30 percent in the 0 range," the down payment on houses rLIFTING y equity in a property, also spells In this sort of situation, Hammond adds, "families with economic problems arent inclined to try to save the house with no equity in it theyll walk away, and were seeing it, now. Virtually without exception, lenders note, the majority of refinancing now taking place still has more of an element of desperation than rea- 34 i v mar. in .? 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