Rejections a Question as Refi Volume Rises.

Washington -- Expectations are growing that the Federal Reserve's rate cuts have set the stage for a refinancing boom that could bolster struggling mortgage companies and help a lot of borrowers get into safer and lower-cost mortgages.

Mortgage refinancing applications have surged in recent weeks, according to a Mortgage Bankers Association survey. But tighter underwriting standards and falling house prices could lead to an unprecedented level of rejections.

This has lenders on edge as they wait for the appraisal reports. "Business is booming on refis but they are all wondering what the values are going to be. That is the wildcard," said mortgage banking consultant Brian Chappelle.

Lenders also are concerned the American consumer may be tapped out, he said, and don't have the savings to pay down the mortgage if the appraisal comes in low. Mr. Chappelle is a founder of Potomac Partners in Washington.

Terry Couto, a founding partner at Newbold Advisors, says there are a lot of people that have been in their homes for a long time and are current on the mortgages. And they are going to have no problem refinancing.

However, this refi wave is "really going to refinance the good credits," he said. The delinquent subprime borrowers can't refinance into another subprime loan any more and they will be lucky to get into a Federal Housing Administration loan.

"Some bad loans are going to get modified, of course. But a lot of bad loans are just going to go bad," he said. Newbold Advisors is based in Palm Harbor, Fla.