Solano Real Estate Scene: Pandemic yields another period of refi-mania

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Mortgage brokers, bankers, credit unions and savings and loans could take a loan application for a refinance and process, underwrite and fund the loan within 45 days back in April 1986. The mortgage rates came down to 6%, and from May 1 to July 1, the number of loan applications at every lender in Northern California quadrupled using the same technology and staff size they had in April 1986. By July 1, the turn times for a refinance grew from 45 to 120 days. Hundreds of thousands of Californians rate-locked their mortgage loan for 45 to 60 days in May and June to reduce their mortgage rate from 10% or 12% down to 6%. Many people from 1979 to 1985 purchased homes without getting a new mortgage because buyers could informally assume (take subject to) the seller’s existing seasoned 5% or 6% interest rate mortgage and produce the cash difference or obtain subordinate financing. It was a “buyer’s market.” Many sellers from 1980 to 1985 would often carry second mortgage financing for buyers so they could sell their house and avoid the 10% mortgage rates. Working as a branch manager in August 1984 for Beneficial, my wife and I purchased our first home from a very kind retired schoolteacher and real estate agent investor who wanted to sell one of his trashed rentals for $103,000. I assumed his $55,000 Home Savings first mortgage at 10%, assumed his second mortgage with Beneficial of $35,000 at 15% and George, the seller, carried a third mortgage for me of $30,000 at 12% for five years, which gave me $17,000 in my pocket so we could pay off all the credit card debt we had racked up with by then two of our four kids. That is right, we owed $120,000 on a house we bought for $103,000. We were young and dumb and although I was making an average of $55,000 per year from 1984 to the summertime of 1986, we could not qualify to refinance in 1986 and combine all three loans into one because I had quit my fantastic corporate job with medical benefits at Beneficial and became a self-employed, licensed independent contractor mortgage broker with no benefits, business plan or taxes deducted from my paychecks. My income would have doubled in 1986 from 1985 if it had not been for the 1986 refinance disaster. I rate-locked 17 loans in May 1986 that were supposed to close in June, which my wife and I were counting on but instead the 17 loans closed by September after battling the lenders for approvals and rate-lock extensions. Mortgage bankers across America lost fortunes from August to November and many went out of business or simply told their clients, “Sorry, but we cannot afford to honor our original 45-day rate-lock we gave you in June because it is now taking 100 days to close a loan and rates are 2% higher.” What is interesting about this story is ABC, NBC and CBS all covered the stress and anxiety of my first refi-mania in 1986 but over the past 10 months, there has been very little coverage on the 2% to 300% increase in refinance volume during a pandemic with loan officers and processing staff teaching kids from home and mortgage lenders across the country adjusting to underwriters, processors and funders working remotely from their homes. It has calmed down now that rates are 3.375% nationally and the novel coronavirus vaccine has kicked in, but holy cow, rates were 2.25% to 2.5% for a few months last year and the local credit unions and mortgage companies were overwhelmed with volume while fighting the pandemic. Thousands of people have been hired by mortgage lenders this past 12 months to keep up with the volume, but it usually takes time to train new people during a pandemic. Mortgage lenders could close a refinance loan in May 2020 in 35 to 45 days, but by September it was taking many great credit unions and mortgage companies 75 to 100 days. Fortunately, rates cooperated, and most rate locks were extended for no additional cost to the borrower. Many loan officers and processors worked 60 hours per week from July to December last year with no time off. Today, most lenders are caught up and getting refinances done in 45 to 60 days and purchases in 30 in this “seller’s market.”