Tuesday, January 15, 2008

Waiting for the FED to refi? Your loan options might be gone.

If your mortgage is more than 3 years old, it's really likely that your mortgage rate is higher than it needs to be. It may be time to refinance. Don't wait for the FED to drop rates as we often hear from fence sitting clients. As you can clearly see from the chart the FED has little if any influence on mortgage rates.

Relative to any point in time since August 2005, mortgage rates are extremely low. If your mortgage is being professionally managed for you, your loan officer has already called you to start the refinance process. If he hasn't called, it may be time to find a new loan officer. But besides low rates, though, there's another major reason to check in with your loan officer.
In a down market, product innovation stops and the process of contraction begins. Mortgage lenders are constantly eliminating "fringe" mortgage products .
Now, "fringe" is a non-specific word because its definition changes constantly. What was "fringe" in 2005, for example, is somewhere in the nightmares and the enormous losses of the banks. This is why a home loan that gets approved today is not promised to be approved tomorrow.
And today's low mortgage rates don't mean a thing if you can't get a mortgage that uses them.

The Mortgage Fringe List is growing along with the number of mortgage defaults nationwide. More defaults = bigger list and as of January 2008, the list includes:
1.Mortgages that don't verify income and/or assets

2.Jumbo mortgages where the applicant's credit scores is below 660

3.Special mortgage products for low-income or first-time home buyer programs, including HomePossible and MyCommunity programs

4.Mortgages on investment properties with less than 20% equity in the home

This is a very different-looking list from the one of Summer 2007 which included home equity lines of credit to 100% and 90% investment property mortgages. These loans have since been discontinued and cast away by investors.

And, like those that inhabited the list before them, the mortgage products on today's Fringe List are very near to the same fate.

This is terrible news for a lot of people including:

1.Homeowners with adjusting ARMs, especially jumbo loans.

2.Home buyers with a 6-9 month time frame

3.Home sellers in declining markets

4.Homeowners in condominiums

5.Homeowners with "life changes" requiring mortgage planning

By Spring 2008, mortgage investors will have already added more restrictions on what they will lend and to whom. Some of the members of the Fringe List will be discontinued; many more will be added to it. Today's fringe borrower is tomorrow's mortgage market casualty so the best time to get a move on is now. If for no other reason that to hear about your options.

Left alone, homeowners will ignore their mortgage. It's the Law of Inertia. Unfortunately, that can have devasting results in a down-turning economy. By the time the homeowner recognizes a need for a new mortgage plan, many will discover the unpleasant truth that mortgage markets no longer serve them.
Mortgage rates are low and it's a terrific reason to check in with your loan officer. While you're on the phone, ask if you're "fringe" and -- if it makes sense -- take steps to protect yourself.

1 comment:

Anonymous said...

In some states a refi can make you personally liable on the mortgage. This should be part of your decision to refi.