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President’s Corner Economy causes hesitance to take advantage of cheap mortgage money

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Kerry Suess

Posted: Friday, October 14, 2011 12:49 pm

Mortgage rates hit historic lows last week falling below 4 percent for the first time since Freddie Mac started keeping track in 1971. The average rate for a 30-year fixed was 3.94 percent. The average 15-year rate was 3.26 percent.

The bad news is that only a small pool of borrowers can qualify to take advantage of those cheap mortgages - and many of them have already done so during the past months of falling rates

“It’s certainly a historic and psychological barrier to go below 4 percent,” said Guy Cecala of Inside Mortgage Finance. “But I don’t think it will have a huge impact because people are not buying homes for other reasons than the interest rate. We tend to be refinancing the same group of qualified borrowers, not really opening up the market to other people.”

Mitchell Chernock, president of Sky Valley Financial, a mortgage broker in Benicia, put it more bluntly.

“We can’t pay people to buy houses,” he said. “If they don’t have jobs, if they don’t feel good about the economy, they’re not going to buy.”

Keith Gumbinger, vice president of mortgage info website HSH Associates, had similar thoughts.

“The price of mortgage money continues to be at fantastic levels, but that’s not the issue,” he said. “Fantastic interest rates are great, but there are many, many borrowers who simply cannot access them.”

That’s because lender requirements for credit and income are tighter than ever. People buying a house need a bigger down payment; people refinancing a house need a lot of equity.

With unemployment high, consumer confidence in a nose-dive and home values continuing to slump, there simply aren’t many people out there eager to take advantage of cheap mortgage money. Not only have the lower rates not caused a stampede to buy or refinance, but applications for purchase mortgages and refis are down, according to the Mortgage Bankers Association.

“Potential borrowers largely remained on the sidelines, seemingly unimpressed by the lowest (by any measure) mortgage rates since the 1940s,” said Mike Fratantoni, the association’s vice president of research and economics. “Refinance application volume declined, and purchase volume was little changed.”

Read more at by Carolyn Said, Chronicle Staff Writer.

“We regret to inform you...”

Nobody applying for a new mortgage or a refinancing wants to see or hear these words. But last year more than two million people were turned down for home loans, according to federal data, often because they didn’t meet certain lender requirements or because their applications were incomplete or otherwise problematic.

And that number doesn’t even include those who abandon the often-complicated mortgage qualification process. The Mortgage Bankers Association estimates that about half of those who try to refinance and 30 percent of buyers are either denied or drop out. Lenders’ underwriting criteria have become more rigorous in recent years; some banks have tightened up beyond federal requirements. Here are the six biggest triggers for rejection, according to industry experts.

Insufficient income. Lenders want to make sure you can afford to make the mortgage payments. Lenders typically look for at least a two-year track record of income, which could hurt those who may have switched jobs recently. It’s common to get turned down if you have a gap in employment history over the last two years.

Cloudy financial picture. Generally, total debt payments, including the mortgage, cannot exceed 45 to 50 percent of your adjusted gross monthly income. Borrowers may be surprised at what counts and what doesn’t. Overtime and bonuses are included only if you’ve worked for the same employer at least two years, and have a history of receiving them.

Bad credit. Lenders typically reject applicants with a FICO score below 620, Mrs. Lantz said. “Some lenders would draw the line a little higher, closer to 660.” About a third of Americans have credit scores so low they are unlikely to obtain any mortgage.

Low appraisal. You may think the home you’re refinancing or buying is worth around $400,000, but the appraiser says it’s closer to $350,000. Suddenly your new mortgage is in jeopardy. This is the predominant reason people are denied home loans today, according to industry experts.

Property problems. Sometimes issues turn up within a building, apartment unit or house, like a major repair or safety problem that needs to be addressed before an application can be approved.

Information mix-ups. About 12 percent of new mortgage applications were denied because of unverifiable information or incomplete credit applications, according to the Federal Financial Institutions Examination Council.

Whatever you do, I encourage you to work local. Find a local Realtor who you know and trust. There are many very good local Lenders who you can count on what they tell you. Ask your Realtor for a recommendation and if you’re not able to purchase now is the best time to prepare yourself to purchase a first time home or investment property. There are great opportunities. If you own a home and not sure what it’s worth. Don’t be afraid. If you are behind on payments don’t wait until it’s too late. Ask for help. You’re not alone. Realtors will meet with you and help to assess your situation for free.

Questions or comments can be made to Kerry Suess at