Refinancing lures, isn't easy

Another mortgage-refinancing boom is under way. But this time around, many homeowners will be watching from the sidelines.

For the first time since 2005, mortgage rates have slipped well below 6 percent. As rates drop further - and some expect that to happen if the economy continues to weaken - increasing numbers of consumers will find refinancing their existing mortgage worthwhile.

But here's the catch, and it's a big one: Many homeowners won't benefit, either because their mortgage is too big or their credit score is too low. In other cases, falling home prices will make it tough for them to refinance.
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In reviewing his portfolio of clients, Kevin D. Herthel, a mortgage broker with AFS Mortgage of Blue Ash, said he believes fewer than 25 percent will likely qualify for a lower rate. "The lower rates are great, but again, because qualifying criteria have changed, it's not as great as it seems," he said.

The average local rate for a 30-year fixed rate mortgage was 5.75 percent on Monday, down from 6 percent just two weeks ago, according to the Cincinnati Area Board of Realtors.

The average U.S. rate for a 30-year fixed mortgage fell to 5.31 percent Wednesday, the lowest since March 2004, when the Fed's benchmark rate was 1 percent, according to Bankrate Inc., a research firm in North Palm Beach, Fla.

"Even before the Fed's action, I felt it was a good time to lock in a long-term mortgage rate," said Covington financial adviser Mackey McNeill. "Any time you can borrow money at under 6 percent, it's a great deal," she said, noting some 30-year fixed rate mortgages locally were in the 5.62 to 5.7 percent range before the Fed's move.

This week's drop in interest rates may encourage up to 7 million homeowners to apply for new mortgages, many to avoid resets of adjustable rates, Tony Crescenzi, chief bond market strategist at Miller Tabak & Co. in New York, said in a report Wednesday.

Indeed, at these levels, about 37 percent of homeowners could refinance their mortgages and save money on their monthly payment, estimates investment bank Bear Stearns Cos.

Consumers clearly are watching interest rates and are eager to attempt to refinance.

"Refinance applications are up 92 percent since the beginning of November and purchase applications are up 7 percent," said Jay Brinkman, vice president of research and economics at the national Mortgage Bankers Association. "With tighter credit conditions we do not know how many of these applications will become loans, but it is clear that borrowers are responding to the 40-80 basis-point drop (0.4- 0.8 percentage points) in rates we have seen since Nov. 2 across products."

Bob Lewis, president of Fifth Third Mortgage Co., said that January mortgage applications at the downtown-based bank's offices across the nation have jumped 200 percent from December. He said consumers have responded strongly to seeing rates dropping. "All lenders have seen their refi activity increase over the last two weeks," Lewis said.

TIGHTER CREDIT STANDARDS

But while interest rates have dropped, making refinancing attractive, banks have been tightening credit standards.

About 40 percent of U.S. banks tightened underwriting standards on prime mortgages in 2007's third quarter, according to the most recent Federal Reserve Senior Loan Officer Survey, issued in October.

For most borrowers, the stricter rules mean a return to standards that were typical in 2001, the beginning of five record-setting years for U.S. home sales and prices, said Henry Savage, president of PMC Mortgage Corp. in Alexandria, Va.

"You're going to have to make copies of your pay stub and some tax documents and fax them to your broker," Savage said. "If you have good credit and some equity in your house, you can still get a loan. The people who are stuck are the ones who bought near the peak and now owe more than their houses are worth."

CREDIT SCORE AND EQUITY

Many consumers "will be left out in the cold this time because underwriting is back in vogue," said Ron Hermance, chairman of CEO of New Jersey's Hudson City Bancorp Inc. Many homeowners will find that during the previous housing boom "they originally got credit they weren't entitled to," he said.

To get the best rates under the new risk-based guidelines, homeowners "need a credit score over 679, or equity of greater than 30 percent," says Michael Menatian, president of Sanborn Mortgage Corp. in Hartford, Conn. But as home prices fall in many markets, homeowners' equity sinks alongside it - making it tough to get more-attractive rates.

source:http://news.enquirer.com/apps/pbcs.dll/article?AID=/20080124/BIZ01/801240340/1076/BIZ