Lending guidelines have gotten out of reach for millions of homeowners seeking to refinance. When a borrower is seeking an FHA or conventional mortgage, the lending guidelines have tighten significantly. Frank Sullivan, is a homeowner seeking financing for home improvements. He and his wife also want to refinance out of a 7.125% home loam, but he have been unable to secure a refinance loan. Sullivan and his wife, Diane, an admin assistant in Carlsbad, California have a $3,350 monthly home loan payment now. They have never been late on a payment since they bought the house in 2003, he says, and they both have credit scores in the high 700s. So why can’t they qualify for a refinance loan and benefit of the near-record-low mortgage rates that have led to a surge in mortgage refinancing applications? They’re like many homeowners who are being shut out, local mortgage brokers and bankers say.
The average mortgage rate for thirty-year fixed-rate mortgages fell to an all-time low of 4.71% the first week in December. The rate was below 4.875% for seven weeks until Thursday, when Freddie Mac said the average rose above 5%. According to the Mortgage Bankers Association, the low refinance rates have spurred a surge in refinance applications, with 3 out of 4 loan applicants looking to refinance.
The volume of refinance loans would be much higher, experts say, if it weren’t for barriers facing many homeowners:
* Property values hurt by home foreclosures and short sales
* Tighter-underwriting guidelines for credit scores, delinquencies and debt to income ratio.
* Income rules that affect the self-employed.
Conventional lenders used to be able to do ‘stated-income’ mortgages. But those have been banned by most banks and lending companies. “I get a lot of self-employed individuals that are 50, 60 years old with 780 credit scores, never made a late mortgage payment in their life, have got $500,000 to $1 million in the bank. But nobody’s going to give them a loan because they’re not showing any incomes on their tax returns.” That’s what’s happening with the Sullivan’s. “The only reason I can’t do anything is that I’m self-employed,” Sullivan said. “It’s extremely frustrating and irritating. Every month, I sit down to write that check, and I know I could be saving money. I’d be saving about 40 %.”
