Why Are Homeowners Finding It Hard To Refinance Today

Mortgage and Lending with George Souto NMLS #65149 FHA, CHFA, VA Mortgages NMLS #65149

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  gsouto@mccuemortgage.com, or visit my McCue Mortgage Homepage.

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 Info about the author:

George Souto NMLS# 65149 is a Loan Originator who is licensed in #CT, #RI, #MA, #NH, & #FL and can assist you with all your #FHA, #Conventional, #VA, #USDA, and #State Bonded Progam #mortgage needs in #CT, #RI, #MA, #NH, & #FL. George resides in Middlesex County which includes #Middletown, #Old Saybrook, #Middlefield, #Durham, #Cromwell, #Portland, #Higganum, #Haddam, #East Haddam, #Moodus, #Chester, #Deep River, and #Essex. George can be contacted at (860) 573-1308 or souto@snet.net


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David Shamansky
US Mortgages - David Shamansky - Highlands Ranch, CO
Creative, Aggressive & 560 FICO - OK, Colorado Mtg

Lets not kid each other tighter credit standards have hurt many. I am not saying your bullet points are not accurate as the MIP premiums as well as LLPA's are insane right now but when you go from anyone with a pulse and a pen get a loan to most places only looking at you for 640+ there has been a MAJOR shift and until that corrects itself it will be a slow recovery as good borrowers with a lower score dont have a chance at  most shops

Jan 14, 2012 12:00 PM #1
George Souto
George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT
Your Connecticut Mortgage Expert

David, 640 credit scores have helped not hurt.

When you look at the level of delinquencies, and foreclosures because of the liberal credit policies that allowed as you said "anyone with a pulse" this has helped the Real Estate Industry not hurt it.  The level of delinquent loans today are putting major lenders in trouble, Bank of America is a good example.

Borrowers with credit scors less than 640 usually have late payments, high balances on credit cards, and collections.  Very few with credit scores under a 640 do not have these issues.

Jan 14, 2012 02:02 PM #2
Nick T Pappas
Assoc. Broker/Broker ABR, CRS, SFR, e-Pro, @Homes Realty Group, @HomesBirmingham & Providence Property Mgmnt, LLC Hun... - Huntsville, AL
Madison & Huntsville Alabama Real Estate Resource

George, I really don't see the tightened credit policies...at least not on a grand scale...just talked to a lender last week who got someone into a home with 619...the have relaxed a bit.  Anyway, I don't really get the increase in the FHA MI multiplier...shouldn't we be doing whatever we can to get qualified buyers into homes...shouldn't we be doing something to stimulate the market?

Jan 14, 2012 03:25 PM #3
George Souto
George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT
Your Connecticut Mortgage Expert

Nick some lenders are still doing loans with lower credit scores, but most are feeling the affect of high delinquencies which in turn is putting a really burden on income.  The higher FHA MI multiplier has increased monthly payment so in turn this eliminated potential buyers from the market.  And Fannie Mae's and Freddie Mac's ridiculous hit for points is also eliminating good buyers from the market.  These two things have had a much greater impact on eliminating buyers than the credit scores.  But the problem is government never looks at themselves, but always points the finger else where.

Jan 14, 2012 03:49 PM #4
Ron Cooks
The Real Estate Marketplace - Killeen, TX
Texas Real Estate, Ft Hood/Killeen Homes for Sale
George your blog keeps me abreast of all things relating to mortgages. Thanks for the informative updates.
Jan 14, 2012 09:21 PM #5
Joe Petrowsky
Mortgage Consultant, Right Trac Financial Group, Inc. NMLS # 2709 - Manchester, CT
Your Mortgage Consultant for Life

As you know, I have mixed emotions about this topic. My job as a mortgage broker, is to get a client a mortgage, especially someone I feel will pay their mortgage. Credit standards are different between lenders. The lenders that do mortgages for folks that have lower credit scores, have loss ratios that are not much different, than lenders that require higher credit scores.

The credit scoring system is not an exact science. It doesn't always mean that someone with a lower credit score, isn't going to pay their mortgage.

Jan 15, 2012 12:47 AM #6
Jamie R. Bell
Bell Realty Group at Berkshire Hathaway HomeServices NEP - Glastonbury, CT
Your Central CT Realtor

It is an interesting topic since things can be different between lenders. In my opinion the changes appeared more drastic because the standards were so relaxed for too long. Buying a home is not for everyone!

Jan 15, 2012 09:38 AM #7
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