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January 2nd, 2009

What the Mortgage Market Needs

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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.

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2 Responses to “What the Mortgage Market Needs”

  1. John Moreno Says: January 6th, 2009 at 2:06 am

    Regardless of the market conditions, as a homeowner I need to know that if I want to refinance my mortgage I have the option to. The amount of lenders that are willing to make the loan are getting few and hard to find. The availability of lenders out there that are willing to “bank” me are scarce. A few months ago, the abundance of lenders was uncountable – but now – every lender is running scared. Now what? I have good credit – or I used to. They have changed the definition of “good credit” so now I have a problem. I am now in the group of homeowners that don’t have a shot, or maybe I am very close. Now what do I do? I know I am not alone out there. Thank you for your information. I will use it.

  2. Tim Manni Says: January 6th, 2009 at 11:11 am

    John,

    Thanks for reading and commenting. Good credit is key to get your foot in the door with lenders. The refi boom has made the once stagnant mortgage biz hopping once again. Lenders have become so swamped, they aren’t investing their time with borrowers who don’t fit their new lending criteria. You 100% correct, the percentage of lenders out there willing to lend are fewer and farther between (lenders are afraid of getting burned). Lenders are looking for borrowers with good credit, and those who don’t owe more than what their houses are worth.

    Good luck, and don’t give up. Thanks again for reading and commenting,

    Tim

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About the HSH Blog

HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni

Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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