Refi Volume Edges Up as Rates Sink.

Sure, the focus remains on credit risk. And because of tighter underwriting standards, refinancing rates have slowed down for most portfolios.

But if you think interest rate risk was a thing of the past, think again. The early portion of 2008 has proven to be a period of declining rates, leaving many of the loans in the typical mortgage servicing portfolio "cuspy." That is, borrowers are on the cusp of having a strong incentive to refinance their home loan to improve the rate and terms.

At the end of January, the average 30-year mortgage rate came in at 5.68%, according to Freddie Mac. Rates had remained in the sub-6% arena for four straight weeks, a feat that hadn't occurred since 2005. That means just about any conforming, conventional loan originated over the past two years is likely to carry a note rate that is in the range of 50 basis points higher than today's rates.

Moreover, plenty of adjustable-rate mortgage borrowers are facing resets that will likely increase their mortgage rate over the "teaser" they paid during the initial fixed period. Those borrowers also - credit quality and equity permitting - will be tempted to trade in their old loan for a new, fixed-rate product.

Sure, people who locked into a 30-year conforming home loan from 2003 through 2005 and have stayed put aren't likely to be calling their mortgage lender yet, but there are plenty of other people who are. The MBA's weekly compilation of loan application data has shown that refinancing accounted for more than half of mortgage applications.

In fact, in the last full week of January, the MBA's weekly survey showed refinancing rising to account for 73% of total loan applications, up from 66% the week before. That's firmly in refi boom territory, by historical standards, though a weak housing market ...