by Nancy Osborne, COO of ERATE®
April 21, 2009 - Mortgage rates have leveled off at rates below 5.00% for over month now. Refinance activity is now at its highest level since 2003. However far different from the underwriting backdrop borrowers faced six years ago, refinancing is far more difficult now as lending and credit standards have tightened significantly. Back in 2003, having a good FICO was likely defined by a score of 620, yet now the definition of rock solid credit and the lowest interest rates that come with it, require having a FICO score in the 700 range.
In the first quarter of 2009, the number of homeowners facing foreclosure grew by almost 25%. Rising unemployment and not rising interest rates on adjustable rate loans, has become the new catalyst for borrowers who default on their mortgage payment. A homeowner who has lost their job cannot qualify for a mortgage loan modification without being capable of producing any income.
As part of the Obama Administration's Housing Stimulus Package, announced in the first quarter of this year, borrowers who are upside down on their mortgages, meaning that their mortgage balance exceeds the value of their home, are now allowed to refinance through troubled GSEs Fannie Mae and Freddie Mac as long as their total mortgage balance does not exceed 105% of their home's value. Prior to this announcement, in order to refinance, a borrower was required to have a minimum of 20% equity in their home. The plan is only being offered to borrowers whose mortgages are held by the two GSEs Fannie Mae and Freddie Mac and homeowners are being given until June of 2010 to apply.
Surprisingly Fannie Mae and Freddie Mac have been allowed to chart their own courses in implementing the government's plan and they have each chosen a different approach. Figures in thus far reflect that Fannie Mae may have cast a wider net as they appear to have received more refinance applications to date by allowing borrowers to choose from over 1,500 approved lenders to initiate their refinance applications. While Freddie Mac's approach conversely has been to restrict their mortgage refinance seeking borrowers to just one option, that of only their current loan servicer. Freddie Mac is hopeful that their approach will speed up the refinancing process and keep costs to a minimum. A concern expressed by industry observers is that by limiting a borrower's outlets for refinancing , fewer consumers will be processed quickly as existing channels may lack the capacity to handle the flood of incoming applications and become bogged down. The best strategy for all homeowners may be to get your application in sooner rather than later if you want to take advantage of the record low rates being offered.
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Nancy Osborne has had experience in the mortgage business for over 20 years and is a founder of both ERATE, where she is currently the COO and Progressive Capital Funding, where she served as President. She has held real estate licenses in several states and has received both the national Certified Mortgage Consultant and Certified Residential Mortgage Specialist designations. Ms. Osborne is also a primary contributing writer and content developer for ERATE.
"I am addicted to Bloomberg TV" says Nancy.