With home loan interest rates falling well below 5%, some stock speculators like the prospects of a flimsy online mortgage matchmaker, Lending Tree ( TREE).

The flight to record-low interest rates is expected to create a refinancing boom that's likely to push mortgage originations to $2.78 trillion this year -- the fourth highest total in history, according to an estimate this week from the trade group Mortgage Bankers Association.

To be sure, the housing market is in ruins, and there will be little business in the near future for new loans to buy homes. But millions of existing loans held by qualified borrowers are carrying relatively high interest rates.

For example, if you had a 6% interest rate on your $200,000 30-year mortgage, you would save $156, or 13% a month if you refinanced at 4.75%. That is a significant monthly savings and about $56,000 less than you would pay at the 6% rate over the course of the loan.

Clearly, the big consumer lenders like JPMorgan ( JPM), Bank of America ( BAC) and Wells Fargo ( WFC) are most directly in line for the refi bounty. There are generally between $2,000 and $10,000 in various transaction fees and closing costs with each refi, and a hefty portion goes to the lender.

But some money managers say the less obvious refi play would be Internet mortgage brokers like Bankrate ( RATE) and the longer shot and lesser known Lending Tree now called Tree. The stock, which Friday afternoon was going for $4.94, is up 90% this year.

This is without a doubt a particularly dicey bet on a weak player facing huge credit market challenges.

Here, however is the trader logic behind the move:
  • Many mortgage brokers were vaporized in the subprime meltdown
  • The offline shops that survived will be swamped with refi activity
  • Rate chasers already getting spot quotes online will stay on the Web to get mortgage offers
  • Tree, which was spun from Barry Dillers' IAC ( IACI) shop in August, is the go-between that takes homeowners' loan requests to its banking partners. The Charlotte, N.C.-based Tree then typically takes five quotes from the lenders and brings them back to the customer. If the customer and the lender make some magic, Tree collects a fee.

    Earlier this month, Tree said the company saw a spike in refinancing activity that was better than expected but added that this surge was not likely to last. "We are not optimistic that these positive market trends will continue beyond the first quarter resulting in lower company performance in the second quarter through the fourth quarter," CFO Matt Packey said in a press release .

    Tree has been hit hard by the real estate bust. It booked a net loss of $202 million last year, which was an improvement from the $505 million loss in 2007, but it still has a negative cash flow from operations. As of Dec. 31, Tree had $74 million in cash and owes $118 million to creditors this year.

    As a stock riding on a refi wave, Tree has shown some buoyancy. But look at it this way: If Tree came to you for a loan, you'd probably duck this subprime borrower.

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