Though U.S. mortgage refinancing volume dropped slightly at the end of 2010, compared to 2009, local lenders say it may be a good time to refinance - if borrowers can navigate challenges such as tighter regulations and sinking property values.
According to the Mortgage Bankers Association, $166 billion in mortgage applications were approved in the last quarter of 2008, at the beginning of the recession. But as the economy worsened - and interest rates fell at some points to below 4 percent - approved refinance applications jumped to $364 billion in fourth-quarter 2009 and fell slightly to $360 billion in the last quarter of 2010.
According to Mortgage Bankers Association data, refinancing applications as a percentage of overall application volumes have climbed significantly in the last five years. In 2010, 73 percent of all U.S. mortgage applications were for refinancing, compared to 44 percent in 2006.
Interest on a 30-year fixed-rate mortgage was at 4.85 percent on March 30, according to
www.bankrate.com, up slightly from 4.81 percent one week earlier, but still within near-record lows of 4.5 percent reported in September 2010.
“It’s still a really good time to refinance,” said Tricia Holman, residential lender with First National Bank of Springfield.
Bart Evans, vice president of mortgage lending at Springfield First Community Bank, anticipates that interest rates will remain low for a while longer.
“Interest rates started coming up around the first of the year, but every time the interest rates start to come up, something happens overseas,” Evans said. “I think uncertainty in America and abroad has kept the rates low.”
Still, not every homeowner who wants to take advantage of lower rates in order to lower their payments or the length of time it will take to repay their loans will be able to do so.
Hurdles to refinancing
One challenge in the refinancing market, Evans said, is that lending regulations call for more documentation, which can make it difficult for some would-be borrowers to obtain loans.
“A lot of what has hurt people is that the reduced-document loans are gone,” Evans said, noting that those loans particularly affect self-employed individuals. “We have a lot of entrepreneurs in the Springfield area and when self-employed people are not able to get loans, it takes a large market away.”
Marita Thomas, vice president of residential real estate and a department manager with Empire Bank in Springfield, noted that more documentation also is required of people who aren’t self employed.
“In the past, a person may only get by with showing a W-2 and pay stubs, and now some people are being required to provide their completed tax returns,” she said.
In addition to new regulations, a drop in property values may make refinancing difficult, Evans said.
While the Federal Home Mortgage Disclosure Act doesn’t provide a breakdown of how many refinancing applications have been denied due to low appraisals, Evans estimates that between 10 percent and 15 percent of the refinancing applications at Springfield First Community Bank in fourth-quarter 2010 were denied for that reason.
“The value may have been there, but comps have been a stickler,” said Evans, referring to comparable homes that have sold in the area.
Holman added that appraisers review the three- to six-month period prior to the loan application date to determine sales prices in a potential borrower’s neighborhood.
“The comps are a little volatile if there are distressed sales and foreclosures,” she said.
Ready to refinance?
While Thomas didn’t disclose Empire Bank’s refinancing volume, she said things have slowed a bit since the end of 2009.
“I think most of those who can have already refinanced,” she said.
Evans estimated refinancing applications were down 50 percent this year from 2010 at Springfield First Community Bank, though he noted that his approval rate for those applications is at 95 percent.
So far this year, he said Springfield First Community Bank has approved 33 refinancing applications, for a total of $4.7 million – a far cry from the nearly $7 million in refinances approved in December 2010 alone.
At First National Bank, Holman said refinancing applications have dropped about 30 percent from 2009 and 2010, and Evans said applications have dropped about 50 percent year-to-date from 2010. Thomas couldn’t provide a percentage for Empire. Holman said refinance applications at First National were down 30 percent from 2009-2010.
Although Evans acknowledged that closing costs or regulations might discourage some homeowners from refinancing, it may still be worth a try.
“I’ve seen a refinance save as much as $200 to $300 on the payments each month,” Evans said. “Most banks allow you to roll the closing costs into the loan and for what it will save a person per month, it can help with monthly expenses now.”
For those who can’t qualify for a refinanced mortgage or who want to wait and see if market conditions – and property values – improve, Evans has some simple advice: Pay the bills.
“It’s best not to be late on anything, but if you have to be, make sure it isn’t your mortgage payment,” he said. “Some banks have a rule that if you’re late once, you cannot apply for a refinance for 12 months.”[[In-content Ad]]
