Contrary to Mortgage Brokers Association reports of a spike in homeowner refinance applications, president and branch manager of H & R Mortgage, Inc. in Falls Church, Agnes Ginoba, said business is so bad that she’s only at her office once every two weeks – a small space she’s since had to sublet.
“If applications are skyrocketing, tell me why I had to get a second job working as an assistant manager at Walgreens,” said Ginoba, who hasn’t been able to process a single loan in over a year.
Though low interest rates presumably make this a hot time to refinance, the hurdle for most is pre-qualifying for assistance. The economic downturn has forced many dual-income families to rely on one salary as hours have been cut and paychecks have been slashed. Pair this with the fact the average troubled homeowner has been late on at least one mortgage payment if their adjustable-rate loan’s interest jumped beyond what they can afford each month. According to Ginoba, homeowners in either of these scenarios most likely won’t qualify because they are a risk to the lender.
“I don’t see how I can help these people if they have to put their real income down, which, for most, has decreased in the last year. People who need help right now are dead broke; they have no juice,” said Ginoba.
She also argued that while the decline in property value has created a window for buyers, it’s caused the refinancing sector to slip into a coma. Counts of underwater mortgages, or when more money is owed to the bank than the home is worth, have increased.
“How can applications be flooding in if people have already lost a good percent over $100,000 of equity on their loan?” posed Ginoba, suggesting that non-qualifying homeowners apply through non-profit organizations like the Neighborhood Assistance Corporation of America or Home Ownership Preservation Foundation.
However, not all hope is lost for financially-fortunate homeowners who’ve paid their mortgage on time, though refinancing should only be considered when the savings equates to one percent less or more off their interest per month.
Ginoba debunked the myth of no-cost refinance and warned that applying to secure a lower interest rate will cost homeowners about three percent of their loan amount. This may not have to be paid immediately, but will likewise accrue interest if tacked on to a new loan amount. Once the total out-of-pocket cost to refinance has been determined and divided by the number of years the property will be occupied, owners may not break even. In situations like these, it’s best to leave it alone.
But in instances where it’s possible to level out and perhaps make a buck in the process, homeowners should first pay a visit to their original mortgage company.
“Time is money they’re already going to have your paperwork on hand. They may not even order an appraisal and that’s all savings, which means less cost to you in the end,” said Ginoba, who advises going to a broker only if your original mortgage company does not offer a lower interest rate.
As ideal as 30-year-fixed rate sounds, it’s more beneficial for a couple with children looking to grow old together on the porch step. For the single, working drifter, a fixed-adjustable rate may be more appropriate.
“If it’s a five-year-fixed adjustable, it’s good because I don’t care who you are; the average human being doesn’t stay in their home over four years. They get bored and want a change of scenery,” said Ginoba.
Full disclosure is another issue of debate when it comes to refinancing. Some homeowners fear spilling the beans on their assets will disqualify them by default for making too much money. On the contrary, Ginoba said banks focus on one thing and one thing only: risk.
The more financial gravy a homeowner can show proof of, the more trustworthy an applicant appears. Exhibiting backup reserves are essential in reassuring the bank you’re going to be okay when — cue full-circle reference — crisis hits.
Nevertheless, no matter what kind of deal a homeowner is able to scrape from their mortgage company, prepayment penalty stipulations of their current loan will play a decisive role in whether they’re even able to entertain the option to refinance. Most homeowners are ignorant to the fact that the fine print of their existing loan prohibits them from paying off in full for a pre-defined amount of years.
“If you have a three-year prepayment penalty and you refinance before those three years commence in order to pay off your present loan, you’ll be subjected with a penalty of up to four percent of your loan amount, not to mention closing costs on top of that,” said Ginoba.
More importantly, homeowners and brokers alike are patiently waiting until March 4, when the Obama Administration will reveal how it plans on executing the $75 billion foreclosure prevention program the president unveiled last Wednesday. The plan calls for measures that will allow millions of homeowners to reduce their mortgage payments through government-backed assistance, though Ginoba said it may be too late for troubled homeowners if the proposal doesn’t include less-harsh pre-qualifying requirements.
“We’re waiting to see how this is going to pan out for us to know exactly how the average person is going to be helped. But if you ask me, the only thing they can do right now is to offer some kind of government subsidy directly to the individual on a case-by-case basis,” said Ginoba.
Republicans have criticized the plan for being unfair to the homeowner who’s paid their bills on time and played by the rules. To that, Ginoba said she agrees to an extent but that now is a time for forgiveness.
“America is a community and at the end of the day, if your house is next door to someone who cannot afford their mortgage payment and are foreclosed upon, the property value of your home is going to decrease when their grass starts growing wild,” said Ginoba. “It’s time to suck it up and bite the bullet.”