The U.S. got into the current slowdown/recession because consumers took advantage of low interest rates and used their homes as ATMs. Will they make the same mistake again?

Already, applications for refinancing mortgages have more than doubled since December because of the sharp decline in U.S. mortgage rates, says Stéfane Marion, assistant chief economist at National Bank Financial Ltd. in Montreal.

Although Marion emphasizes that these are only applications, it is startling nevertheless.

How many of the applications will be approved is not known, but Marion expects that refinancings of “conforming loans” that can be bought by Freddie Mac or Fannie Mae will go through.

The fate of other applications will depend, to a large extent, on the ability of financial institutions to securitize some of them. There were signs in January that the securitization process might be “unclogging.” But outstanding securitizations fell back slightly in the first half of February as a result of “renewed stress in credit markets.”

In the meantime, the U.S. housing market remains in disarray. Homebuilders’ inventories of unsold completed homes hit a record 40% in December, at 195,000. Marion believes homebuilders “have little choice but to turn more aggressive on price reductions to reduce the glut.”

At the same time, investors have become increasingly nervous about the market for commercial real estate (CRE). Although delinquency rates are still low, CRE concentrations have increased significantly for a number of financial institutions, particularly smaller regional players with less than $1 billion in assets.

More than a third of Federal Deposit Insurance Corp.-insured institutions already had CRE loans — to the tune of 300% of equity capital in the third quarter of 2007 — and 20% of institutions had CRE loans at about 400% of equity capital. As Marion points out: “Under these circumstances, the loss rate does not need to rise by much to have a significant impact on these institutions’ earnings.” IE

— CATHERINE HARRIS