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Timing's everything in refinancing home

Lenders tighten their grip on who qualifies for rates

By John Rebchook, Rocky Mountain News (Contact)

Published February 16, 2008 at 12:05 a.m.

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A real estate auction sign in Denver indicates how things are going in the housing market as Colorado homeowners scramble to qualify for low 30-year, fixed-rate mortgages.

Photo by Javier Manzano / The Rocky

A real estate auction sign in Denver indicates how things are going in the housing market as Colorado homeowners scramble to qualify for low 30-year, fixed-rate mortgages.

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Three weeks ago, rates for a 30-year, fixed-rate mortgage bottomed out at 5.175 percent.

Then the window, open for no more than a day, slammed shut, and the rates have since shot up, briefly touching 6.25 percent on Thursday, according to Lou Barnes, principal of Boulder West Financial Services.

Not only have rates been volatile, but it's not as easy for borrowers to qualify for low rates as it used to be.

Since the end of December, the number of refinance applications nationwide has risen by more than 200 percent, according to the Mortgage Bankers Association.

Eric Tupler got lucky.

The vice chairman of CB Richard Ellis Capital Markets Denver office, refinanced his second home in Eagle County at the low rate.

"I wouldn't tell you that everybody would have been able to get the loan I got," Tupler said.

And it's not just about getting a low rate anymore. You have to qualify, and that's not as easy given the fluctuating housing market.

After years of easy money - when people in the lending industry joked that all you needed was a pulse to get a loan with a low, initial teaser rate - lenders have returned to making sure borrowers are qualified to make payments.

Lenders are tightening their underwriting as world economies are being rocked by the mess left by the subprime debacle; housing prices are losing ground; and foreclosures are going through the roof.

Congress and President Bush are trying to lessen the impact of the housing market collapse with an economic stimulus plan, as well as proposed legislation.

For many people, refinancing to a lower rate would be one way to save money - and maybe their homes - as adjustable rate mortgages are rising to 7.5 percent or higher.

"Some of my loan officers I have been talking to said, it used to be if 10 people applied for a loan, only one or two would not qualify," said Peter Lansing, president of Universal Lending.

"Now they are saying, if 10 people apply, as many as six or seven of them will not qualify," Lansing said. "That's been a big shocker to people."

In the past, many people who refinanced did so to take cash out of their homes, which added to today's tumult, because they used the equity in their houses to buy a big-screen TV or a new SUV.

Now, even if their credit scores are high enough, if the house is underwater - that is, the loan is worth more than the real estate - they're likely to be rejected by the lender.

But people who are refinancing today, seldom take money out, Lansing said.

Instead, they either are refinancing to save money each month or to seek the safety of a fixed-rate loan, instead of risking an adjustable rate mortgage rising to unacceptable levels.

"For some people, it's just a matter of sleeping better at night," Lansing said.

CB Richard Ellis' Tupler, who began his career on the residential side 15 years ago, saw the "10-year Treasury moving aggressively" three weeks ago and locked in a 5.125 percent rate, amortized over 30 years. He closed on the loan last Monday.

In August, when he bought the home, he locked in a five-year, interest-only ARM at 6.375 percent.

"My monthly payment stays the same, but I'll save a considerable amount in interest payments," Tupler said. "And since it was a no-cost refi, it's almost like getting free money."

In addition to excellent credit scores, Tupler put 20 percent down on his mountain home.

And to make the deal even more attractive to U.S. Bank, his longtime lender, the appraisal came in 5 percent higher than what he paid for the home five months ago.

Since he locked in his rate, the average 30-year mortgage has risen to 5.72 percent as of Thursday, although that's better than in early November, when the average rate was slightly higher than 6 percent.

Cameron Cook, a loan officer at U.S. Bank, said he was "extremely busy a couple of weeks ago, when rates were really low. They went down significantly and for a couple of days they were in the low 5s. But that was pretty short-lived. They're still good, but not as low."

So how do you know when it is time to refinance?

"I personally think it is the responsibility of the loan officer," Cook said. "I don't expect my customers to know as much about the market as I do or follow it as closely."

Rates have been on a roller-coaster ride recently, and it likely will take at least 12 to 18 months for the housing market to get back on its feet, Cook said.

That said, he is anticipating a refinancing boom this summer.

He also said there will be more home-buying activity in Denver, even if that doesn't happen nationwide.

"Rates change every day, but I think we will have an overall steady decline, with rates staying fairly steady for several months," Cook predicted.

"After school gets out, people will want to move, and with lower home values and low interest rates, it will be a good time to buy," Cook said.

rebchookj@RockyMountainNews.com or 303-954-5207

Refinancing tips

* Get pre-qualified first. If you don't, you're wasting your time and the time of your loan officer.

* One rule of thumb is that the new rate must be at least a point lower than what you are currently paying. So if you're paying 7.5 percent, make sure you get a rate of 6.5 percent or lower.

* Start with your current lender. It doesn't want to lose you as a customer and typically will make it a hassle-free experience. But it never hurts to comparison shop.

* Make sure you know all of the costs associated with refinancing. That can include appraisals, title searches and documentation fees. If it costs you $3,000 and you save $300 a month, it will take you 10 months to recoup your costs.

* Most lenders suggest that you get the lowest rate possible without paying any points. A point equals 1 percent of the loan amount.

* Be cognizant that there are two factors at work - time and money. You might save money each month, but if you have paid five years off on a 30-year loan, and you start over again, your savings could be an illusion because of added payments over the life of the loan. On the other hand, your game plan may be to sell the house long before the loan is paid off. As an alternative, you could ask the lender if he can amortize the new loan over 25 years instead of 30 years.

Comments

  • February 16, 2008

    7:13 a.m.

    Suggest removal

    vudumom writes:

    So now the bottom feeders who gave loans to anyone with a pulse are now tightening the noose so they can't re-fi.A little more picky now?Who do you think encouraged these people to take equity out of their homes?Everytime except the last time I have re-fied or bought a house some loan person has said ,you sure you don't want to pull some of that equity out of your house and go on a dream vacation?Redecorate?Do some home improvements?Buy a new car?
    Then I would look at them and ask how stupid do I look?Why would I put my house on the line for a vacation?Then I would ask them before we applied for a loan,would you put your house on the line to buy a vehicle or which depreciates in value,or a vacation that has no long term value?If he or she says yes,I move to on to a different lender,because these people are stupid.

    For people who are trying to re-fi your new loan,here are some suggestions to follow they won't tell you.

    If you have good credit and are being charged closing costs of anything above an appraisal,walk away.You shouldn't have to pay money so a lender can lend you money.No points.That's what you should be paying if you have clean credit.
    People with clean credit have earned it,don't let anyone charge you for money.That includes credit cards.If you are not paying 0% on your credit cards and carry a balance,it's time to switch cards.Keep switching until you pay off your balance because they are no interest and you can pay them down much ,much quicker.Just make sure you read the fine print and have no balance transfer fees.

    Those of you with sub-prime,no-closing costs,piggyback 2nd mortgages that someone talked you into taking out equity at closing and still have some equity in your home,you are the new money maker for the slagging home financer or lending institution.
    You know the scene you often see in prison movies where a big guy tells the little guy to bend-over?That's you.
    They are going to tell you since your credit isn't so good you are going to have to pay closing costs,lots.
    You are the new " Who can I get my money from today?,victim.They are going to charge you points and fees up to the amount you have left in equity in your house.They are going to tell you don't worry,we will just tack it onto the loan,no pain right?They have to sqeeze someone,might as well be someone that is ripe for another squeezing,right?These people make no money unless they get people to get a loan or refinance.Who do you think they are going to make a living from?
    Not people like me,with pristine credit and a 4.8% fixed 15 year loan with 6 years paid off that I paid $3.00 for to have it notarized.

    Watchout people round #2 is about to start.Watch all the home vultures come out of the woodwork when the economic stimulus checks start to arrive.

  • February 16, 2008

    1:25 p.m.

    Suggest removal

    skinny writes:

    Thank you for that. I had to beg our lender to speak english and not mortgage speak when we refinanced. And then I found out that I did not get what I told him I wanted. When we had finished I found out that I had indeed waded into a predatory loan. I threatened them with media exposure and lawsuits (Thankfully I had all the emails detailing what I wanted and his replies that this mortgage would be exactly what he told us it would be) So they refinanced again, and sucked up the costs and returned our equity they were stealing. I spent months trying to educate myself on the process, I have an advanced college degree, and they STILL managed to screw us before I caught it. This. Has. Got. To. Stop. (And we have PERFECT credit!)

  • February 16, 2008

    5:16 p.m.

    Suggest removal

    vudumom writes:

    Skinny,I feel for you.It is hard to know what is buried in the papers they have you sign.I am fortunate to have a husband who was a real estate agent in Maryland and is a math genius.Very handy when he pulls out his calculator at closing and crunches the numbers down to the last penny.We have walked away from at least 4 re-fi's or closings because of the numbers not adding up or the papers not being correct.He knows how to read the papers and what they mean.
    I'll give you some advice for future reference.
    1. If you have perfect credit you should never have to pay for a re-fi.A new home yes,that you will have to pay some.
    2.Hire a real estate attorney for your next closing.People hire home inspectors ,why not a real estate attorney for closing?
    In Maryland all closings are done at an attorney's office with the buyer's and seller's attorney or with a buyer's attorney for a re-fi.If you don't know how to read the numbers or the documents hire a good real estate attorney.

    Hope this won't happen to you again.