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Refinancing eludes many as rates fall

Carolyn Said, Chronical Staff  Writer
Sunday, January 18, 2009

"Everybody wants to refinance, and nobody qualifies," said Marc Savoy, a mortgage broker with Pacific Mortgage Consultants in Larkspur.

That's a slight exaggeration - in fact a quarter of the people who come to Savoy do qualify, he said.

As has been the case for months, only borrowers with stellar credit, documented income and equity are seen as desirable. That means that struggling homeowners who face the prospect of foreclosure are completely shut out.

"If you have one mortgage (payment) late, I can't even touch you, so forget about (someone who's close to) foreclosure," Savoy said.

But even otherwise well-qualified people are finding obstacles because of the plunge in home prices.

Most of the mortgage boom is in refinance applications, not home purchases. As values fall, many homeowners find that they suddenly don't have enough equity for a refinance.

"Home values have dropped so extraordinarily low that it's taken people out of the game," Savoy said. "Lenders chart a premium based on how much equity you have. If you start climbing above 80 percent equity, they charge you for it, making it so expensive that it's not worth it to refinance."

The Federal Reserve's promise to purchase mortgage-backed securities brought down rates - which lured prospective borrowers.

The Mortgage Bankers Association said that mortgage applications for the week ended Jan. 9 were the highest since June 2003, and were up 52.4 percent compared with the same week last year.

But the "pull-through rate" - the percentage of applications that resulted in actual loans - was less than 50 percent, said Orawin Velz, associate vice president of economic forecasting at the Washington, D.C., trade group.

"Lending standards are much tighter now and also home prices have declined in many, many areas," she said. "This is a more severe problem in your area on the West Coast. In California, Florida and Arizona, many areas have seen double-digit (home price) declines for months and months."

Bill Meeker of Fremont is one of those getting crunched by falling home values. He has a steady job as a CPA for a Fortune 500 company, excellent credit, equity in his home - and he only needs a conforming loan of under $417,000. But while his equity was once 20 percent, as home values have sunk, it has dropped to about 10 percent. Lenders tell him that's not enough to qualify for a refinance, so they are turning him down or requiring that he pony up extra money for pricey mortgage insurance, he said.

"No lender will allow me to refinance without mortgage insurance or bringing a ton of cash to the table," he said. "Many simply refuse to work with me, including my current lender."

Meeker is taken aback by being seen as an undesirable lending prospect.

"I'm one of the good guys," he said. "I pay on time; I didn't get in over my head. I'm not responsible for this temporary drop in real estate prices. I'm sure there are a lot of people in my boat so I find it surprising that lenders won't work with us."

New business bottlenecks

At Bank of the West in San Francisco, Stew Larsen, mortgage banking division executive, said volumes are up dramatically.

"The number of loans we have in process is 2.5 times as large as it was on Dec. 1," he said. "It's been a remarkable run-up in new business."

All that business has created bottlenecks at many lenders, which had trimmed workforces during the past couple of lean years. The result is that loans take longer to process.

At Bank of the West, "we're closing loans now in 35 days," compared with 20 days a year ago, Larsen said. Home buyers, who often have a contractual time limit to fund their mortgage, go to the head of the line. "We tell refi applicants we will lock you in for 60 days and no shorter, to make sure we protect your rates."

Guy Cecala of Inside Mortgage Finance in Bethesda, Md., said that otherwise qualified buyers can run into problems besides declining equity.

"None of these low rates are being offered to investors, who accounted for close to a third of borrowers" during the boom years, he said. "Investors are being treated like plague victims."

Another hurdle, even for those with plenty of equity, is trying to take out cash in a refinance. Homeowners with existing home equity lines of credit, even if they don't want to borrow any more money, are treated as cash-out refis and seen as less desirable, he said.

"For example, if you have a $300,000 mortgage and a $100,000 line of credit and your house is worth $700,000, you've got plenty of equity," he said. "But paying off both of those and getting a new mortgage would be treated as a cash-out refi by Fannie Mae and Freddie Mac these days. They penalize cash-out refis."

Shop before signing

The safest type of refinance? "Rate-adjustment refis - refinancing just to get a lower payment."

Cecala advises consumers to shop around.

"It's advantageous to go through a mortgage broker because they can talk to multiple lenders and tell you what the best prices are," he said. "Some brokers can get better rates out of lenders through their wholesale division than you can get through retail" - going directly to the lender.

But many major lenders have curtailed their use of brokers. JPMorganChase, for instance, said last week it will stop doing business with brokers. The other downside to brokers, he said: "They get better rates but they can add more junk fees.

"There are a lot of potholes," Cecala said. "It's a lot of work to refinance your mortgage these days."

Mortgage rates break below 5%

After falling for five straight weeks, interest rates for 30-year fixed mortgages dropped below 5% for the first time since the 1950s.

  30-year 15-year 5/1-year ARM

1-year

ARM
Average rates: 4.96% 4.65% 5.25% 4.89%
Fees & points: 0.7 0.7 0.6 0.5
Margin: N/A N/A 2.74 2.75

Source: Freddie Mac

E-mail Carolyn Said at csaid@sfchronicle.com.

Copyright 2009 SF Chronicle, This article appeared on page D - 1 of the San Francisco Chronicle

Carolyn Said, Chronical Staff  Writer
Sunday, January 18, 2009

"Everybody wants to refinance, and nobody qualifies," said Marc Savoy, a mortgage broker with Pacific Mortgage Consultants in Larkspur.

That's a slight exaggeration - in fact a quarter of the people who come to Savoy do qualify, he said.

As has been the case for months, only borrowers with stellar credit, documented income and equity are seen as desirable. That means that struggling homeowners who face the prospect of foreclosure are completely shut out.

"If you have one mortgage (payment) late, I can't even touch you, so forget about (someone who's close to) foreclosure," Savoy said.

But even otherwise well-qualified people are finding obstacles because of the plunge in home prices.

Most of the mortgage boom is in refinance applications, not home purchases. As values fall, many homeowners find that they suddenly don't have enough equity for a refinance.

"Home values have dropped so extraordinarily low that it's taken people out of the game," Savoy said. "Lenders chart a premium based on how much equity you have. If you start climbing above 80 percent equity, they charge you for it, making it so expensive that it's not worth it to refinance."

The Federal Reserve's promise to purchase mortgage-backed securities brought down rates - which lured prospective borrowers.

The Mortgage Bankers Association said that mortgage applications for the week ended Jan. 9 were the highest since June 2003, and were up 52.4 percent compared with the same week last year.

But the "pull-through rate" - the percentage of applications that resulted in actual loans - was less than 50 percent, said Orawin Velz, associate vice president of economic forecasting at the Washington, D.C., trade group.

"Lending standards are much tighter now and also home prices have declined in many, many areas," she said. "This is a more severe problem in your area on the West Coast. In California, Florida and Arizona, many areas have seen double-digit (home price) declines for months and months."

Bill Meeker of Fremont is one of those getting crunched by falling home values. He has a steady job as a CPA for a Fortune 500 company, excellent credit, equity in his home - and he only needs a conforming loan of under $417,000. But while his equity was once 20 percent, as home values have sunk, it has dropped to about 10 percent. Lenders tell him that's not enough to qualify for a refinance, so they are turning him down or requiring that he pony up extra money for pricey mortgage insurance, he said.

"No lender will allow me to refinance without mortgage insurance or bringing a ton of cash to the table," he said. "Many simply refuse to work with me, including my current lender."

Meeker is taken aback by being seen as an undesirable lending prospect.

"I'm one of the good guys," he said. "I pay on time; I didn't get in over my head. I'm not responsible for this temporary drop in real estate prices. I'm sure there are a lot of people in my boat so I find it surprising that lenders won't work with us."

New business bottlenecks

At Bank of the West in San Francisco, Stew Larsen, mortgage banking division executive, said volumes are up dramatically.

"The number of loans we have in process is 2.5 times as large as it was on Dec. 1," he said. "It's been a remarkable run-up in new business."

All that business has created bottlenecks at many lenders, which had trimmed workforces during the past couple of lean years. The result is that loans take longer to process.

At Bank of the West, "we're closing loans now in 35 days," compared with 20 days a year ago, Larsen said. Home buyers, who often have a contractual time limit to fund their mortgage, go to the head of the line. "We tell refi applicants we will lock you in for 60 days and no shorter, to make sure we protect your rates."

Guy Cecala of Inside Mortgage Finance in Bethesda, Md., said that otherwise qualified buyers can run into problems besides declining equity.

"None of these low rates are being offered to investors, who accounted for close to a third of borrowers" during the boom years, he said. "Investors are being treated like plague victims."

Another hurdle, even for those with plenty of equity, is trying to take out cash in a refinance. Homeowners with existing home equity lines of credit, even if they don't want to borrow any more money, are treated as cash-out refis and seen as less desirable, he said.

"For example, if you have a $300,000 mortgage and a $100,000 line of credit and your house is worth $700,000, you've got plenty of equity," he said. "But paying off both of those and getting a new mortgage would be treated as a cash-out refi by Fannie Mae and Freddie Mac these days. They penalize cash-out refis."

Shop before signing

The safest type of refinance? "Rate-adjustment refis - refinancing just to get a lower payment."

Cecala advises consumers to shop around.

"It's advantageous to go through a mortgage broker because they can talk to multiple lenders and tell you what the best prices are," he said. "Some brokers can get better rates out of lenders through their wholesale division than you can get through retail" - going directly to the lender.

But many major lenders have curtailed their use of brokers. JPMorganChase, for instance, said last week it will stop doing business with brokers. The other downside to brokers, he said: "They get better rates but they can add more junk fees.

"There are a lot of potholes," Cecala said. "It's a lot of work to refinance your mortgage these days."

Mortgage rates break below 5%

After falling for five straight weeks, interest rates for 30-year fixed mortgages dropped below 5% for the first time since the 1950s.

  30-year 15-year 5/1-year ARM

1-year

ARM
Average rates: 4.96% 4.65% 5.25% 4.89%
Fees & points: 0.7 0.7 0.6 0.5
Margin: N/A N/A 2.74 2.75

Source: Freddie Mac

E-mail Carolyn Said at csaid@sfchronicle.com.

Copyright 2009 SF Chronicle, This article appeared on page D - 1 of the San Francisco Chronicle

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License number 00685309
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Licensed by the California Bureau of Real Estate
License number 00685309
NMLS number 338105
Equal Housing Lender