Mortgage rates at historic lows, but it's harder to refinance
Valeria and Milos Coric bought a home in Lincolnshire in 2002 and paid the monthly mortgage regularly. That devotion helped to build equity for them and stability for their two children.
So when mortgage rates dropped to historic lows, they were eager to refinance, despite seeing the value of their home drop from $522,000 to around $500,000.
They traded in that 30-year mortgage for a 20-year fixed loan, lowering their interest rate from 5.25 percent to 3.62 percent and cutting their payments by nearly $200 a month, Valeria Coric said.
The Corics, like many other suburban homeowners, waited for interest rates to drop to refinance or to apply for a new mortgage. Bankers and other loan professionals said they've seen a lot more applications -- as many as 40 percent more this year compared with last year during the same period. Most of those applicants want to refinance, they said.
But others can't take advantage of the low rates. A job loss, poor credit score or reduced home value in a tough real estate market littered with foreclosures have made it difficult or impossible to qualify for a new home loan.
The federal Home Affordable Refinance Program, known as HARP 2.0, can help some borrowers refinance even if their homes have significantly lost value, making them ineligible for a conventional mortgage in the amount of their existing loan. But they still must meet certain income and credit standards to qualify.
Those who do qualify for refinancing might find the process takes longer than in the past because of increased oversight and a flood of applicants.
In the week ending June 8, mortgage applications nationwide increased 18 percent from the week before, the highest level since May 2009, according to data from the Washington, D.C.-based Mortgage Bankers Association. Applications have dropped back slightly since then, dipping 6.7 percent on June 29 from one week earlier. Seventy-eight percent of the applications were for refinancing, the association reported.
That doesn't necessarily mean all those applicants are getting loans. Some suburban loan professionals said a small percentage, possibly 10 percent, actually get approved.
"Home values have gone down substantially, and that's one of the main causes of why people are not qualifying" for refinancing, said Bob Curry, executive director of Lombard-based Illinois Association of Mortgage Professionals.
Seeing concrete evidence of what their home is worth can be a shock, even for those who aren't trying to sell, said Tamara J. Bellisario, president of the Illinois Coalition of Appraisal Professionals and president/owner of Bellisario Property Consultants in Gurnee.
"This has been very difficult for homeowners because their values aren't where they need to be," Bellisario said. "When homeowners see the loss of value, it can be emotionally difficult."
Bellisario and other professionals agree that despite the historic lows for mortgages, many just aren't able to take advantage of it or don't have the patience as the process slows down due to increasing oversight. "We have more government restrictions on us now than ever before," Bellisario said of appraisers. "A 12-page report has now become a 40-page report."
Such increasing government regulations and industry oversight has led to more paperwork for mortgage professionals as well.
"We now need to document every little thing," said Evan Geiselhart, president of HomeTrust Mortgage Corp. in Schaumburg. "And that's causing a lot more paperwork. It causes more delays and a lot of rolling eyes from our clients."
Even having clients with good credit doesn't mean they'll get a loan, said Evan B. Klee, area sales manager in the mortgage department at Fifth Third Bank in Highland Park.
"Equity and income are still a factor, but for the most part people that have good credit have the good income," said Klee. "In some cases they don't have the equity to do anything. But they have a greater opportunity to fit into a program than someone that doesn't have those qualities."
Many mortgage seekers are looking at HARP 2.0, which the federal government rolled out in March. It enables certain borrowers who had Fannie Mae and Freddie Mac mortgages to refinance even if they're upside-down on their mortgages -- owing more than their homes are worth.
The loan they're seeking to refinance must have been sold to Fannie or Freddie before May 31, 2009, and they must be able to qualify on income and credit standards. Even homeowners who aren't upside-down can benefit.
"For example, a borrower bought at the height of the market in 2007, and put down 30 percent," said Geiselhart. "But the home is worth less now, and they're at 90 percent loan-to-value." He said with Harp 2.0, that borrower might be able to refinance without paying for private mortgage insurance, which usually is required when equity is below 20 percent.
Pat and Scott Waldau of Gilberts waited for Harp 2.0 and quickly sought to reduce their monthly mortgage payments. They bought their home for about $330,000 in 2006 through a Freddie Mac loan. The Waldaus recently sought to refinance, though their home was now valued at about $240,000. "The fact that we could refinance with this government-sanctioned program was great and we saw no downside," Pat Waldau said. "We were able to save over $400 a month."