After the financial crash in 2008, mortgage lenders stop making mortgages readily available tor homebuyers. Lenders made credit and other underwriting criteria so stringent many Americans, who would have qualified as good credit risks in “normal” housing market conditions, routinely received credit rejection letters from lenders.
In the mean time, home values have felled an average of 34 percent nationwide since the market peaked. Places like Las Vegas, Phoenix and Miami saw their home prices drop 45 to 50 percent. According to CoreLogic, approximately 11 million Americans homeowners have underwater mortgages. The AARP reports that 3.5 million of these homeowners are people over age 50.
In early 2012, the White House worked with federal agencies – the Federal Housing Finance Agency (FHFA) and Federal Housing Agency (FHA) to loosen requirements for refinancing home mortgages in an effort to help struggling homeowners.
Federal Programs to Help Homeowners
Government programs such as Home Affordable Modification Program (HAMP), Home Affordable Refinance Program (HARP) and the FHA streamline refinance program received overhauls to broaden the number of borrowers who may qualify for assistance.
Changes include the following items:
- HARP - Lift 125% cap loan-to-value ratio
- HARP – Eliminate need for appraisal in most cases
- FHA - Reduction of certain fees
- FHA – Drop credit and income underwriting requirements
To meet eligibility for HARP mortgage program borrowers must have loans insured by Fannie Mae or Freddie Mac by May 31, 2009. Only homeowners who currently have FHA-insured mortgages quality for the FHA streamline refi program. The HAMP program changes at least one term of the mortgage to reduce monthly payments and make loan payments more affordable.
Banks at Capacity, Homeowners Exasperated
In February, when the issue came up about inadequate staffing to handle the increase in applications, spokespersons for the various banks said they were working on building up in-house staff to handle the additional workload. Bank of America said it was placing a limit on the number of mortgage refinancing application taken over the telephone.
At that time, bank representatives told potential borrowers who did not already have a relationship with the bank they would have to wait 60 to 90 days for the lender to process their applications.
Now it seems the tone has change. Bank of America and other lenders have restricted refinancing to servicing their current customers -- at least those borrowers whom get can pass the lender’s qualifying criteria.
Mortgage refinance applications as a percentage of total mortgage applications have gone up – reaching 81 percent for the week ending July 13, according to the Mortgage Bankers’ Association survey. However, many homeowners have not been able to refinance their high rate loans to mortgage with lower interest rates.
Three factors continue to beset homeowners who want to take advantage of low interest rates:
- Underwater mortgage
- Tight underwriting standards
- Lenders backlogs and inadequate staffing
Inside Mortgage Finance spokesperson, Guy Cecala, said only a “loosening of underwriting standards to bring more borrowers into the market. And that is not likely to happen anytime soon.”
Lenders are concerned about “buyback claims,” which climbed to $22.7 billion in the last quarter – more than a $6 billion increase. Buyback claims refer to bad loans banks must purchase back from Fannie, Freddie and FHA, which have deficiencies in underwriting. Lenders required borrowers to produce more documentation to support their underwriting decisions and protect against buybacks.
Although federal agencies have modified HARP and FHA-insured loans programs to widen the pool of eligible homeowners, lenders can overlay additional requirements on borrowers.
Some homeowners resent the time-consuming, tedious process of refinancing. In addition, the average loan origination and title fee of $4,070 on a $200,000 loan has presented a financial impediment for many borrowers.
The bond market seems to agree, banks have reached their capacity -- the bulk of mortgage refinancing mortgage has taken place. Investors’ willingness to pay more than face value for bonds backed by higher interest rate mortgages shows the strength of this opinion. Investors’ actions indicate that unless something drastic occurs, most of the remaining homeowners will end up keeping their existing mortgages.