Home loan interest rate drop spurs spate of refinancing, first-time buyers still shy away.

The lowest interest rates in 20 years have caused an explosion in home refinance loans, but there has not been a big rush on home purchase loans, at least so far, Southland lenders report.

The Federal Reserve Bank cut the discount rate, the interest rate the Fed charges banks, to 3.5 percent on Dec. 20, the lowest rate in 20 years. In turn, banks lowered interest rates and consumers can now get a 30-year, fixed-rate mortgage with an interest rate of between 8 percent and 8.5 percent.

The day after the Fed cut the rate, Countrywide Credit Industries Inc., saw phone inquiries increase from 1,500 a day to 3,000 or 4,000 a day, said Jerry Baker, managing director of the Pasadena-based mortgage banker. "We have everybody who can answer a phone answering a phone," Baker said.

Most of the inquiries have been about refinance loans, Baker said. Countywide was offering an 8 percent interest rate on a fixed, 30-year mortgage. With that rate, a typical homeowner paying an 11 percent interest rate could reduce payments from about $1,000 a month to about $800 a month, he said.

Countrywide, had its biggest month ever in December with $1.4 billion in loan volume, Baker said. In mid-1991, Countywide was doing an average loan volume of $500 million to $600 million a month, he noted.

"We are beginning to see an increase in purchase transaction applications," Baker said. But it will take 30 to 60 days for lenders to see a real increase, he explained, because home buyers must first find their dream house before they apply for a purchase loan, he said.

There are some calls from homeowners who will not be able to benefit from a refinance loan because they bought their property in the last two years and it has dropped in value, Baker said. But most people qualify.

"Every lender I know has, well, I won't say more calls than they can handle, but a lot of calls," Baker said.

Requests for refinance loans and loan volumes were up in December at Beverly Hills-based Great Western Financial Corp., the second-largest savings and loan in Los Angeles County, said Sam Lyons, senior vice president of mortgage banking at Great Western. "Our loan volume has increased month by month since the beginning of 1991," Lyons said.

The percentage of loans which were refinance loans, as opposed to home purchase loans have also increased, Lyons said. In December, 75 percent of loans were refinance loans as compared to 42 percent in July. In 1990, refinance loans made up 20 to 25 percent of residential lending, he said.

Great Western made $785 million in residential loans in December, compared to an average of $625 a month for all of 1991, Lyons said.

But total loan volume at Great Western for 1991 was $7.5 billion, down from $10.5 billion in 1991, Lyons said. "It's very moderate growth in assets," he said.

Lyons explained that although there is a lot of activity there is not a great deal of growth, since as Great Western refinances old mortgage loans from other lenders, other lenders are refinancing home purchase loans Great Western originated. "Yes, we are losing loans to others. We're all just kind of standing still because everybody is trying to steal each others customers away," Lyons said.

At California Federal Bank, the number of inquiries for home loans is growing and the percentage of refinance loans is also increasing, said Mark Ulmer, executive vice president for the savings and loan.

Refinance loans made up 77 percent of the residential loan volume for the month of December, up from the average of 53 percent of loans for the year of 1991 and 49 percent for the year of 1990, Ulmer said.

In many of the refinances in which borrowers are taking more equity out of their home, they are using the funds to pay off credit cards and other personal debt, he said. "People are looking for debt consolidations," Ulmer said.

A boom in refinancing is not necessarily the desired effect of the Fed when it cuts interest rates, said Fred Furlong, economist with the Fed in San Francisco.

Although consumers with lower home payments may spend more money to stimulate the economy, "certainly if the banks could hold onto the higher mortgage rates they would be better off," Furlong said.

The Fed hopes the lower rates will stimulate home buying, Furlong said.

The Los Angeles Board of Realtors had a 25 percent increase in pending sales in December 1991 over December 1990, said Gregg Pawlik, president of the board. Pawlik attributed the increase to lower interest rates.

Pawlik, who also sells homes in the Pacific Palisades office of Jon Douglas Co., said he personally has noticed three to four times more activity on listings, and a 25 percent increase in sales closings since late December.

Still, Pawlik said, tough economic times and the general lack of consumer confidence will continue to affect the housing market. Pawlik predicts that those who feel confident about keeping their jobs may buy a new home, while those who aren't sure may refinance.

In January, it is still too early to tell what the impact of the new low rates has been on home purchases, said Leslie Appleton-Young, an economist with the California Board of Realtors. "I have heard anecdotally that traffic is way up, that people are out there looking," she said.

The Dec. 20 cut in the rates may finally get prospective home buyers out of the house, Appleton-Young said. Before the last cut, many home buyers were waiting to see if interest rates would go lower, she said.

Appleton-Young predicted the interest rates would have an impact not only on the first-time homebuyers but on move-up homebuyers. But she added, "I don't think anyone is saying this is going to return us to the market of two or three years ago."