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Mortgage refinancing helping to keep weak economy afloat.

One of the most important factors driving the nation's economy in recent years has been the boom in mortgage refinancing. Fueled by record low interest rates, homeowners have been cashing in on the tremendous savings realized by refinancing their mortgages at significantly lower rates. In fact, many economists credit the home refinancing boom for keeping an otherwise sluggish economy afloat.

"The refinance index recently has been setting records. Homeowners not only have reduced their monthly payments, they have withdrawn as much as $200 billion of additional cash out of their inflated home values. They have paid off high interest debts as well as bolstered their spending power," said Bruce W. Mason, chief economist for Union State Bank, the largest bank headquartered in the Hudson Valley.

Union State Bank reports an unprecedented surge of refinancing activity for its branch network in the RocklandWestchester area. For the past year, the Bank has seen a 69 percent increase in the number of loan applications from 2001. The Bank reports that dollar volume of loans closed in 2002 jumped 64 percent from the year before.

"Our pipeline of applications stands at an all-time high. We're so busy that we have had to add staff to our mortgage department to handle the sheer volume of business," said Harry G. Murphy, senior vice president and retail loan division officer for Union State Bank. "Approximately 90% of all of our residential loan activity involves refinancing existing loans," he added.

Murphy attributes the surge in refinancings to the several rounds of interest rate cuts made by the Federal Reserve Board in the past 12 months. "When the Fed cut interest rates after the Sept. 11 tragedy, we began to see a sharp rise in refinance applications. That heavy volume carried over into early 2002 but began to level off in the late spring and early summer. Now, with the Fed further cutting rates in early November, we are once again experiencing a wave of refinance activity," said Murphy.

"Clearly, 2002 will be a record year for us for mortgage loans - both in number of closings and dollar volume. We've never seen anything like it," he added.

In order to keep pace with the accelerating loan volume, Union State Bank is streamlining the closing process to make it quicker and easier for its customers. "We pride ourselves on our ability to close loans quickly," said Murphy.

To save time, the bank now orders an appraisal at the time the application is received. Union State Bank has also assembled a team of more than 40 closing attorneys to work with its customers.

And Union State Bank has joined with a group of about a dozen other banks to form its own title insurance agency called New York Bankers Title Agency East, LLC.

"Everything we're doing is aimed at saving time for our customers and making the loan process as convenient as possible," he said.

According to Murphy, much of the Bank's residential loan activity involved refinancing loans held by existing customers. "Lately, however, we're doing a lot more refinancing of loans held by other banks whose rates are not competitive with ours."

Currently, Union State Bank offers some of the most competitively priced mortgage loan rates in the region. Union State Bank's mortgage loans offer 1/8% off the rate when customers have their monthly payments automatically deducted from a Union State Bank checking account. Customers are using this low-rate environment to convert to shorter term and biweekly loans, which will save thousands of dollars in interest over the remaining life of the loan. A typical $250,000 loan can save over $60,000 in interest payments and shorten the term of the loan 61/2 years by refinancing with a biweekly loan. Customers can request a loan application online by visiting the Union State Bank Web site at or by calling the Union State Bank Customer Service Center at 1 800-616349 1.

"Recently, approximately half of all our loan applications are new accounts for us. That helps build other business for our bank as we bring in new customers," Murphy noted. "Mortgages are a great product for cross selling other bank services. Once we close that business, then we offer the home equity loan, deposit products and credit cards. It's all part of our philosophy at Union State Bank, which is 'Do Business with Us, Do Better with Us,' "he added.

Union State Bank offers both regular and Gold Visa and MasterCards with a special low annual percentage rate that is good for one full year after the account is opened on new purchases and balance transfers. The Regular Visa and MasterCards have no annual fee for the first year, and there's no annual fee ever for the Gold cards.

In addition to the low rate and no annual fee for the first year, USB's regular Visa and MasterCards also include $150,000 travel insurance, 24-hour toll-free travel hotline, discount travel service and auto rental discounts. The Gold cardholders enjoy $500,000 travel insurance, 24-hour travel emergency assistance, and discounts on eyewear, auto rental insurance and pharmacy purchases.

What is the outlook for refinancing activity in 2003?

Union State Bank's chief economist Bruce Mason predicts a slowdown in refinancing activity for the first half of 2003. He said deficit spending by the federal government would put pressure on long-term rates, which, in turn, will drive up mortgage interest rates slightly in the first half of 2003.

According to Mason, another factor affecting refinancing activity is the fact that demand, which has been at record levels for the past two years, is slowing.

"The level of pent-up demand, which we saw in 2002, is beginning to ease. The refinancing boom may have already boomed," he said.

Will the prospect of higher rates fuel another short-term surge in refinancing activity? "People are already jumping into the market," he said.
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Publication:Real Estate Weekly
Geographic Code:1USA
Date:Jan 15, 2003
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