Mortgage hunters find bargains at last

"Is it really true?" That is the $64,000-plus question blurted out by would-be, yet loan-short, homebuyers across California when the nation's largest savings and loan association, based here, slashed its prime mortgage rate from 17.5 percent to 12 .75 percent.

At Home Savings and Loan Association, which shocked the home lending industry with its dramatic cut May 7, the "phones were ringing off the hook," says a company spokesperson. "The response has been extremely positive, there's no question about it."

The lending institution's move, which was followed quickly by similar cuts by other California-based savings and loan associations, promises new life for the state's sagging housing market -- where the average price for an existing single- family home is $97,300.

"We had lots of calls from people who just wanted to know, 'Is it true?' to calls from brokers who had transactions in process and were interested in getting financing," says a Home Savings spokesperson.

Last week's interest rate slash by Home Savings was prompted in part by the belief among savings and loan associations that rapidly falling short-term interest rates will spur a return of deposits to savings and loans. Those savings in turn will mean that more money is available for loans.

Another factor, says the Home spokesperson, was the drastic decline in the institution's lending volume. Last month, with rates of 17.5 percent, only $10 millin in loans were put into escrow, compared with $240 million in April of last year, when Home's mortgage rate was 10.75 percent.

Although Home officials say it will take two weeks to determine how many of the inquiries received at the firm's 23 offices will translate into loan applications, some lending institutions and real estate brokers noted an immediate increase in activity.

News that the tiny, one-office Orange Coast Savings and Loan had followed the lead of Home Savings and chopped its lending rate May 8 from 18 to 12.5 percent prompted a deluge of business that was almost too much for the institution's two loan officers.

Nearly 90 people called the first day. And six walked in off the street and filled out loan applications, according to Chuck Darnall, chief loan officer. The following Monday brought 30 more calls and four additional applicants to the office.

"It's nice to see people smiling again, I can tell you that," says Mr. Darnall. "It's still tough. Twelve and a half [percent] is not 10.5, that's for sure. But it helps."

At Walker and Lee, a real estate firm representing 125 builders of 200 subdivisions in southern California and Arizona, closing figures for the week of May 11 showed sales had more than doubled over the previous two weeks.

Although the drop in lending rates did not come until mid- week, George Fulton, vice-president of marketing for Walker and Lee, still says the cut "had a marked influence. That interest rate thing brought a lot of people out of the woodwork.

"We haven't had anything good to say in the past few months," he says. "It's been a disaster. But with the turnaround last week, even though it's just a one week indicator, the general feeling is that sales will be strong."

Industry analysts, however, warn that the lending boom may be short-lived. The sizable slash, they say, may have been too much, too soon. Continued double-digit inflation or a deep recession also will affect the lending future, they say.

The lowered mortgage rate means that buyers who were priced out of the marked by 17 percent interest rates in March can now move into the market again.

But California housing prices continue to increase, spiraling at a rate of 26 percent over the past year.

At Orange Coast Savings and Loan, borrowers who have applied for loans at 12. 5 percent tend to be "pretty well established," in their 30s, with both husband and wife working, says loan officer Darnall. The homes they want to buy range from $87,000 to $150,000. And the average amount of the loans they are seeking is $89,000. Moreover, many of them paid their 20 percent down payments in cash.

Orange Coast's new 12.5 percent rate means a substantial savings on a 30-year , $89,000 loan: Payments will be approximately $1,076 a month, compared with $1, 468 a month at an 18 percent rate. But such prices still keep many moderate-income families out of the market.

Because demand for California housing is great, prices are expected to continue climbing. According to the California Association of Realtors (CAR), the demand for housing this year is 315,000 homes, or nearly twice the 165,000 units CAR predicts will be built by the year's end. In 1979, 210,000 new homes were built.

That demand was graphically illustrated last month when mortgage rates were still sky high.In the rapidly growing Orange County city of Irvine, buyers lined up days in advance for a crack at 40 homes selling for $200,000 each. More than half the homes sold the first weekened they went on the market.