Can't Refinance Mortgage? Here's What You Can Do

Refinancing your mortgage may not be impossible right now, but it sure will require a lot of work.

CNBC.com

A confluence of factors has come together to make mortgage lending particularly difficult in the slumping market, and the problem is particularly troubling for refinancers who are looking to get out from under their adjustable-rate or interest-only loans.

Plunging housing prices, tightening credit requirements and ever-rising interest rates are all combining to make the process far more difficult than it was even a year ago.

The problem is especially acute for borrowers of jumbo loans—mortgages that exceed $417,000—that are not insured by Fannie Mae

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[FRE  Loading...      ()   ] and are thus less attractive to investors on the secondary market.

Mortgage experts, though, say there is hope, but it requires perseverance to work through the array of obstacles in the process.

"This takes time," cautions Ellen Bitton, CEO of Park Avenue Mortgage Group in New York City, a broker that works with a variety of lenders to find the right package for borrowers. "There's no magic bullet right now. There is just diligence and working through each case individually with the client."

Keys to Success

There are four main tenets to successful refinancing applications, Bitton says: Good credit, high loan-to-value ratio for the property in question, liquidity from the borrower, and the ability to document income.

In the free-wheeling lending practices of the earlier part of the decade, loans with low or no down payments to borrowers who often didn't even have to prove their income were common. No more.

"The pendulum has swing from being overly aggressive with mortgage lending to overly conservative with mortgage lending," Bitton says. "I don't consider prudent lending (giving) 105 percent mortgages to people with bad credit scores."

Mortgage brokers will work with clients who have been rejected by their primary lenders to try to shore up any deficiencies in the key areas. But they're not always successful, with most of the failures coming when a property has just depreciated too much to be considered for a refinancing loan.

"If it's a loan-to-value issue, if they were approved under a 90 percent loan and their property has devalued, then there really is no recourse," Bitton says.

Other problems, though, can be addressed more readily.

Bad Credit? It Can Be Fixed

Michael Riemer, senior vice president at Guard Hill Financial in New York, says his company works closely with clients who have credit issues and is often successful at rehabilitating low scores and getting loans.

"It's much harder to get financing for people with low credit scores. But the answer is not to put somebody into a lender who will refinance at a high rate and they'll be right back where they started from," Riemer says. "The answer is to help somebody improve their credit score so we can help them get the lower rate today that they actually need in order to make the payments on that house."

One of the keys Riemer cites for his brokerage's success is the differing array of lenders with which they do business. Some lenders, he says, will look past basic credit score numbers and into why the scores are so low. Others will apply different criteria for loans or be more assiduous in determining an accurate appraisal.

Choice, Riemer says, is imperative.

"Very often a person will be financeable, just not to the bank they would normally go," he says. "We have so many loans under our umbrella that we can determine what lender will do that for them even though two out of three won't. There will be certain situations where we will not be able to refinance someone, but it's pretty unusual."

One of the areas where mortgage brokers will focus in difficult cases is on determining an accurate appraisal to establish an adequate loan-to-value ratio.