Despite Low Mortgage Rates, Homeowners Can't Refinance
Mr. Belvedere said he would be willing to live with all that lost equity if he could refinance his loan from a variable rate, which could eventually go as high as 12 percent, into a 30-year fixed term.
His lender said no, citing the diminished value of the property.
“It makes no sense and is so frustrating,” Mr. Belvedere said. “I’m ready and willing to pay the mortgage for the next 30 years, but they act like they’d rather have me walk away.”
When Mr. Belvedere refinanced four years ago, the process was so easy he hardly remembers it.
“In those days, a refinance was like a free weekend in Vegas,” said Mr.Cecala of Inside Mortgage Finance. “Now it’s between an Army physical and a root canal — and that’s if you’re successful.”
The current lending freeze owes much to the excesses of the boom. Mr. Belvedere’s lender, IndyMac, failed in 2008 from too many bad loans.
“The system was abused, so they threw it out the window,” Mr. Cecala said. “Now lenders are paranoid about every loan unless it is guaranteed to be the safest deal on earth.”
An Obama administration program to encourage the refinancing of loans owned or guaranteed by Fannie Mae and Freddie Mac, the government-controlled mortgage giants, is off to a slow start.
The Home Affordable Refinance Program, known as HARP, was designed to benefit between four and five million homeowners whose loans exceeded the value of their property by as much as 5 percent.
But as of Sept. 30, only 116,677 loans had been refinanced.
“We’re refining our understanding of borrower behavior,” said a Treasury Department spokeswoman, Meg Reilly.
The program was modified during the summer to refinance homes where the loan exceeded the value of the property by as much as 25 percent.
But since lender participation is voluntary, they have the option of rejecting these loans — and they often do, mortgage brokers say.
Jeff Jaye, a mortgage broker in Danville, Calif., said only three of the refinances he submitted to the program were successful.
More than a dozen were rejected for various reasons, including the existence of second loans or the borrower’s lack of equity.
“It seems that the lenders are choosing which components of the HARP program to offer to consumers, which is unfortunate,” the broker said.
When it comes to refinancing loans that are too big to be in the government system, Mr. Jaye knows the difficulty first-hand.
“I have a perfect credit score, I make a good living and I’ve never been late with my mortgage in my life,” he said. “But as a self-employed businessman, there is no loan for me.”
He plans to dispose of his house in what is known as a short sale, where the lender agrees to accept less than it is owed.
At an industry conference last week, the Illinois Association of Mortgage Professionals, a brokers’ group, proposed a federal program that would allow streamlined refinancings up to 175 percent of the median price in a local market.
A quarter of the savings from the lowered payments would go into an escrow account to reduce the principal balance.
“The theory is simple,” said Jeri Lynn Fox, the association president. “If people have jobs and are making their payments at 7.25 percent, they will make their payments at 5 percent.”
For Mr. Knapp, the sales executive, any such program would be too late. He has given up on the possibility of refinancing and is trying for a loan modification. If that does not work, there is one more solution: walking away from his home.
“We’re a flight risk,” he said.
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