Mortgages: A Waiting Game for Refinancing

Excerpt for The New York Times
Mortgage professionals are advising clients on the fence about refinancing not to wait.
By BOB TEDESCHI
Published: March 6, 2009

IN the weeks before the Obama administration announced its housing plan, some members of Congress were lobbying the government to subsidize 4 percent mortgages for homeowners who were current on their loans. But that proposal never made it into the plan. Rather, the administration has decided so far to focus on helping distressed borrowers more easily refinance or modify loans, with terms typically reflecting today’s market rates, now in the low 5-percent range for qualified borrowers. (Only loans owned or backed by Fannie Mae and Freddie Mac would qualify.)

While mortgage professionals have not lost hope that low-rate, government-subsidized mortgages could eventually happen, they are advising clients on the fence about refinancing not to wait. Interest rates remain near historic lows, but at the same time, lending standards have tightened and property values have fallen. If those trends continue, some borrowers may no longer be eligible to refinance.

The waiting game is particularly risky for homeowners in areas where property values are dropping sharply, and for those with barely above 20 percent equity in a home — the typical minimum for qualifying for any home loan. If the borrower has already secured a mortgage commitment during that time, most lenders are likely to proceed with the transaction even if a property’s value has dropped, according to Regina Garlin, an owner of RCG Mortgage in Montclair, N.J. “If a rate is locked and the loan was approved,” she said, “most lenders will usually honor the original agreement.”

To prevent any problems, though, Ms. Garlin suggests that borrowers have at least an informal home appraisal beforehand. “I recommend having a real estate agent provide comparable sales within the most recent three to six months,” she said. “While it’s not as exact as a certified property appraisal, it can serve to prepare for the unexpected before incurring costs or wasting time.”

These days, home loans are taking longer to review. Lenders are scrutinizing applications more closely, and because of industrywide layoffs, many banks now have fewer loan processors to help vet applicants. Ms. Garlin said it used to take four to six weeks to complete a purchase mortgage, and three to four weeks for a refinance mortgage. Now, she said, a refinance can take as long as six weeks, and a purchase mortgage can take as long as two months.

Loans insured by the Federal Housing Administration are an exception, mortgage experts say, because lenders can more easily sell these loans to investors. Nicholas Bratsafolis, the senior managing director of structured refinance at Lend America, a mortgage bank based in Melville, N.Y., says his company can complete an F.H.A. loan in 12 days or less from the time that initial contact is made with a borrower. The loan process is also faster, he said, because his company no longer works with brokers. “Many banks who bought loans from brokers were badly burned,” Mr. Bratsafolis said, referring to banks that did business with brokers during the housing boom. “So while the broker put together the loan package, the fear for a bank is that there’s something in the package that may not be correct or verifiable.”

Reflecting a move toward more conservative business practices, many major lenders have either chosen not to work with brokers, or are working with far fewer brokers than in years past. But Alan Rosenbaum, the chief executive of the GuardHill Financial Corporation in Manhattan, said consumers who go directly to a major lender do not always have the experience described by Mr. Bratsafolis of Lend America. Mr. Rosenbaum said borrowers who go to a bank’s retail branch can sometimes wait 90 days for a loan to close, because the lenders are so backed up. “We know which banks are slow or fast,” he said, “so we can place loans with the banks with the best rates and the best service levels.”