Thursday, December 22, 2011 / by Raul Pineyro
The region's high levels of unemployment and depressed property values have made it tougher for many borrowers, and lenders are demanding better credit histories and proof of income before they'll refinance a loan. Only about half of those in the region seeking to refinance may actually qualify for a loan - far lower than before the housing market bust, South Florida mortgage brokers say.
Still, for many borrowers who don't face those problems, the rush to refinance is on.
"There's been a lot of activity," said Claudine Claus, owner of Home Financing Center, which operates in Palm Beach, Broward and Miami-Dade Counties. She says the part of her business devoted to refinancing mortgages has quadrupled in the past 30 days, compared with the 30 days before that.
"Rates have dropped," she said. "A whole new group of people are interested in refinancing even though every loan can't be refinanced."
The people for whom refinancing makes the most sense are those who didn't get caught in the housing bubble and bust.
"There are a lot of people who purchased homes before (that cycle), who bought from 2002 to the 2005 peak in market," said Andre Brooks, who is in charge of the mortgage business in Florida for Wells Fargo Home Mortgage. "They have interest rates that are higher than the current market levels and they may not be experiencing negative equity." Negative equity is the term for owing more on a mortgage than a home is worth.
Applications for refinancing are up in Florida and nationwide, according to online lender Lending Tree.
Nationwide, four out of five conventional loan applications and more than half of Federal Housing Administration and Veterans Administration loan applications were for refinances in the last month, according to Freddie Mac Economist Frank Nothaft. The Mortgage Bankers Association says its weekly index of applications to refinance nationwide for the week ended July 16 was at the highest point since mid-May last year.
The rates are truly great. Thursday, the average rate on a 30-year, fixed-rate mortgage was a record-low 4.56 percent, down from 5.2 percent the year before, according to Freddie Mac, a federal government-backed mortgage provider. Previously, the all-time low was 4.57 percent. Freddie Mac has been releasing the weekly mortgage rates for 39 years.
According to Bankrate.com, the average mortgage interest rate at the end of 2008 was 6.33 percent. A borrower who had a $200,000 loan then could save $200 a month in payments if he or she refinanced today.
To see whether refinancing makes sense, borrowers should divide the fees they pay to refinance their loans by the monthly amount that they'll save. That will tell them how many months they would have to live in the home to recoup the expense of refinancing.
Dan Longman, president of Priority Lending Corp. in Cooper City, said lenders want borrowers to have a 740 credit score or higher to qualify for the lowest-rate mortgages loans. Two years ago, he says a 680 score would suffice. Lenders also now require full documentation of a borrower's income, unlike during the housing boom when "no documentation" loans were often called "liar loans." And some are requiring borrowers to re-verify their income in the time between the application and final approval.
Indeed, anyone who is out of work will have a difficult time qualifying because they don't have sufficient income to make their loan payments. With unemployment ranging from 10.1 percent to 12.8 percent in Broward, Palm Beach, Miami-Dade and Orange Counties, that eliminates a huge swath of Floridians from the possibility of refinancing mortgages.
The other big obstacle is depressed home values. Because property values have fallen so far in the four-year downturn in the housing market, close to half of Fort Lauderdale's borrowers owe more on their homes than the property is now worth, according to CoreLogic, a real estate analytics firm. They probably won't qualify to refinance, either, because private lenders will not refinance a loan for more than the value of a home. The proportion of "underwater" loans are similar throughout South Florida.
There is one option for borrowers who are underwater to refinance. If the loan is owned by Fannie Mae, a government-sponsored mortgage funding corporation, it can be refinanced if the amount is 125 percent of the home's value. To find out if a loan is owned by Fannie Mae, use the "loan lookup" tool at www. Fanniemae.com.
Given the hurdles, "it's a real shame that all of these people can't take advantage of the rates," said Lane Barron, a senior mortgage consultant at Element Funding in Sunrise. His office this month has almost twice as many applications for new loans than in January, but none of them are for refinancings. Brokers say homeowners who know they are seriously underwater on their mortgages aren't even bothering to apply. But tougher standards are affecting even some folks with sterling credit seeking new mortgages. David Kosowski, of Miami, had an enviable credit score of more than 800 and a steady job. But he says he could not get a lender to give him a loan because part of his income depends upon the profits of his company. Profits had fallen during the recession. He instead paid cash to close on his home in June.
"Now I'm hoping to refinance," he said.
Time may be on his side. Concerns about the economy's recovery are the reason why rates have declined. Economists think they may stay there as the uncertainty continues.
"Mortgage rates are also expected to remain low heading into 2011," said Sam Khater, senior economist at CoreLogic, a real estate analytics firm. But he warned that the outlook could change if inflation, which is pretty much absent today, comes roaring back.