What the Mortgage Market Needsby Tim Manni
The holidays didn’t keep mortgage borrowers too busy to deluge lenders with applications. Most were for refinance, unsurprisingly, but the Mortgage Bankers Association reported a decent amount of interest in purchase mortgages as well, noting that “The refinance share of mortgage activity decreased to 82.9 percent of total applications from 83.2 percent the previous week.” Which means that the pace in homebuying is picking up… very slightly.
Unfortunately, a lot of would-be refi borrowers are getting a rude reality check:
Recent drops in interest rates have homeowners rushing to call local banks and mortgage lenders about refinancing. Loan applications are pouring in.
Yet, South Florida homeowners are mostly getting a big fat ”No!” from the bank when they ask to refinance. The chief reason: Falling home values mean they owe more than their homes are worth. …
It’s another painful irony of living in one of the nation’s worst hit housing markets — borrowers who owe more than their homes are worth cannot refinance without ponying up thousands of dollars in cash to cover the difference between the old and new loan amounts.
And they’re the ones in most dire need.
It’s like we’ve been saying for a while now: to get the homebuying market really moving again, we need to focus on the people who can help it the most:
With all the talk about refinancing, though, there’s one key but unaddressed audience: those good credit quality borrowers who are making payments on time, but are inadvertently underwater on their loans due to poor market conditions. These borrowers cannot sell; they cannot refinance; they are well and truly stuck.
Worse, the only incentives for them in the markets are perverse ones, since no help is available until these borrowers fail (or nearly fail). With a fair bit of money left in the TARP — but mere days left to employ it under the present administration — we believe that any new focus should be to helps these folks become more solvent. As home prices continue to decline, this problem worsens every day. Time’s a-wasting.