Earlier this week I wrote a blog titled "Are Tighter Credit Standard Really Slowing Down Market Recover?" in the blog I disagreed with Federal Reserve Board Governor Elizabeth Duke who was attributing our slow market recovery to tight credit policies. I believed then and still do now, that if there is blame to be given, it needs to be directed at the excessive cost that Fannie Mae, Freddie Mac, and FHA have imposed on Borrowers. These same forces along with a Housing Market that has depreciated in value over the last four years, has also had a major impact on the ability of homeowner to refinance their mortgages into lower interest loans.
Let me explain why the actions of Fannie Mae, Freddie Mac, and FHA, along with home values depreciating have made it very difficult for homeowners to refinance.
- First it comes as no surprise to anyone that home values have depreciated across the country. They have depreciated at different levels from state to state and even town to town, but virtually almost every town across the country has been impacted by this. What that means is that many homeowners owe more on their homes than they are presently worth. These homeowners are left with basically only two choices if they want to refinance.
- They can refinance their present mortgage by borrowing up to the allowed Loan-To-Value on their property, and then paying the difference along with the Closing Costs.
- Or if they presently have an FHA Mortgage, they can do a Streamline Refinance without an appraisal, but they still have to come up with the Closing Costs.
This is a major problem for most homeowners because if they are not able to roll in the additional Closing Costs into the refinance they just simply do not have the money to refinance.
- Second, in the case of a FHA Streamline, the homeowner will be faced with higher Monthly Mortgage Insurance (MI) then when they first took out the original mortgage. If they took out their present FHA Mortgage more than a year and a half ago, their MI payment payment would have been figured on a .50 or .55 multiplier. Today the FHA MI multiplier is 1.10 or 1.15, that is more than double then what it was when they first took out the original loan.
Example: If the loan amount was $100,000 when they first took out the loan and lets, use the higher MI multiplier of .55 their MI payment would have been $48.83 per month. Today that same $100,000 with a 1.15 multiplier will cost them $95.83. That is more than twice the payment, and cuts into the monthly savings that they would have achieved through the lower interest rate substantially
As you can see in many cases that would not make any sense to do, especially with the added Closing Costs that they will also have to pay.
- Third, Fannie Mae, and Freddie Mac will charge up to .25 to 3.50 points in Closing Costs to a homeowner that is refinancing a mortgage at 95% Loan-To-Value depending on where their Credit Scores fall between 620 to 740. That means that on a $100,000 mortgage it could mean as much as $3,500 in Closing Costs. This tends to also be a major deterrent in many cases.
Hopefully you can see from the three examples above that the reason why many homeowners are not able to refinance today into lower interest rate loans is not because of "Tighter Credit Standards", it is because Fannie Mae, Freddie Mac, FHA, and depreciating home values. If Ms Duke really wants to point fingers and help, she needs to go after Fannie Mae, Freddie Mac, and FHA, and get their hands out of the pockets of homeowner, and maybe then homeowners can get some financial relief from the low interest rates that exist today.
Who To Call For Your Mortgage Needs In Connecticut:
George Souto NMLS# 65149 is a Loan Officer who can assist you with all your FHA, CHFA, and Conventional mortgage needs in Connecticut. George resides in Middlesex County which includes Middletown, Middlefield, Durham, Cromwell, Portland, Higganum, Haddam, East Haddam, Chester, Deep River, and Essex. George can be contacted at (860) 573-1308 firstname.lastname@example.org, or visit my McCue Mortgage Homepage.