Re-Fi Boom, Low Rates Create Millionaires Sunday June 8, 9:34 am ET By Philip Klein NEW YORK (Reuters) - In 1987, Leif Thomsen started brokering mortgages out of his spare bedroom. This year, thanks to a U.S. mortgage market that should easily top 2002's $2.6 trillion record, he expects to earn as much as a movie star. With consumers hungry to take advantage of the lowest mortgage rates since Dwight Eisenhower was U.S. president, Thomsen's company, Walpole, Massachusetts-based Mortgage Master Inc., has been mediating about $700 million worth of home loans a month. This is more than double last year's pace, when Thomsen's personal earnings were about $10 million. "We're drowning," he said. "We can't keep up. We're working 24/7 and we've tripled the amount of people we have working here in the last six to eight months." The company currently has 270 employees and receives about 1 percent of the value of each mortgage as commission. The sustained strength in the mortgage market has made millionaires out of brokers like Thomsen and has meant strong growth for lenders such as Countrywide Financial Corp. (NYSE:CFC - News), while helping banks with large mortgage businesses including Wells Fargo & Co. (NYSE:WFC - News) and Washington Mutual Inc. (NYSE:WM - News) It has also been credited by many economists for helping keep a weak economy out of recession. A study published at the end of last year by Economy.com's Chief Economist Mark Zandi concluded that nearly a fifth of U.S. economic growth since late 2000 was directly linked to the refinancing boom. "THE GOLDEN ERA" Since Federal Reserve Board Chairman Alan Greenspan spoke last month on the threat of deflation, mortgage rates have dropped to their lowest level since August of 1958, according to Bankrate.com. The average rate for a 30-year mortgage is currently at 5.31 percent, Freddie Mac (NYSE:FRE - News), the government-chartered home finance institution, said last Thursday. Just a few months ago, it was thought that rates had hit rock bottom and that mortgage activity was set to recede. But some estimates now say that the volume of mortgages could soar to $3.7 trillion this year in the United States, far exceeding the record $2.6 trillion in 2002. "This is the platinum period, the golden era for mortgage finance," said Tom LaMalfa, co-founder of Wholesale Access Research and Consulting Inc., an industry group. LaMalfa joined the mortgage business in the 1970s, which he said was the previous high-water mark, as the baby boomer generation grew to home-buying age. But back then, homes were worth far less, meaning that to justify refinancing a loan, rates would have to fall at least 2 percentage points. Now, a half percentage point drop makes it viable to refinance loans, he said. The recent drop in mortgage rates made 85 percent of mortgages ripe for refinancing, even some that were refinanced earlier this year, Friedman, Billings, Ramsey analyst Paul Miller said. This has meant a bonanza to many lenders, especially Countrywide, where the value mortgages it funded more than doubled to $102 billion in its first quarter compared to the prior year. Mortgage fundings are set to be higher in the second quarter currently under way, according to Doug Perry, vice president at the Countrywide Home Loans unit. This has not been lost on investors, who have pushed the stock up about 40 percent this year. It reached an all-time intraday high of $74.24 last week on the New York Stock Exchange (News - Websites) before retreating a bit. HIGH-STAKES GAME But while home loan lenders and banks with a high concentration in mortgages are cashing in now, they have the most to lose when the market levels off. "Refinancing booms slowly burn themselves out if rates stay flat, because everybody who can refinance, refinances and then you just have a basic market," Miller said. "When rates shoot up it usually chokes off refinancings." He said refinancings have accounted for about three quarters of mortgage transactions this year. Countrywide has beefed up its sales force to build relationships with local realtors, which Perry said would benefit the company once rates go back up and the market shifts away from refinancing and toward new purchases. Many lenders such as Countrywide use mortgage brokers to gain access to more clients. Borrowers may use an intermediary to get the lowest rate because it can be easier than calling banks or lenders individually. The current refinancing boom could cause problems for government-sponsored enterprises Fannie Mae (NYSE:FNM - News) and Freddie Mac, which buy and sell packages of home loans. The risk comes if too many of the mortgage loans and bonds they own get paid off faster than they can acquire new ones or pay off some of their own debt. But so far, they have managed their investment portfolio carefully enough to avoid such problems, raising volumes from their mortgage securitization business and achieving robust overall growth in the process. With analysts expecting interest rates to stay low -- or even fall -- any weakening in the mortgage market could be a year away. For now, Tom Digan, who works at Mortgage Master and earned $1.7 million last year, can expect to field 100 calls or more on a busy day. He said they don't bother to advertise because the company gets all the work it can handle from past clients and through referrals. "Unfortunately, we don't spread it out in this business," Digan said. "It all comes at once.