Mortgage rates rose this week, and homeowners rushed to refinance. The pattern is familiar: People wait on the sidelines while mortgage rates are falling. Then, when rates finally hit bottom and bounce back up, homeowners apply to refinance mortgages.
This wave of refinancing resembles a gentle swell, rather than a tsunami, because there aren’t a lot of homeowners remaining who qualify for a refinance but haven’t yet done so.
The benchmark 30-year fixed-rate mortgage rose 3 basis points, to 5.04 percent, according to the Bankrate.com national survey of large lenders. A basis point is one-hundredth of 1 percentage point. The mortgages in this week’s survey had an average total of 0.43 discount and origination points. One year ago, the mortgage index was 5.8 percent; four weeks ago, it was 5.19 percent.
The benchmark 15-year fixed-rate mortgage rose 1 basis point, to 4.47 percent. The benchmark 5/1 adjustable-rate mortgage rose 3 basis points, to 4.55 percent, and the 30-year, fixed-rate jumbo fell 2 basis points, to 6 percent.
Two weeks ago, the 30-year fixed fell to 5 percent, a record low in the 24-year history of Bankrate’s weekly mortgage rate survey. Mortgage rates are only a smidgen higher now, underlining the fact that rates are extremely generous by historical standards. That point was not lost on homeowners; there was an 11 percent increase in seasonally adjusted refinance applications last week, according to the Mortgage Bankers Association. Three-quarters of mortgage applications are from refinancers, and one-quarter are from homebuyers.
Weekly national mortgage survey
Results of Bankrate.com’s Dec. 9, 2009, weekly national survey of large lenders and the effect on monthly payments for a $165,000 loan:
30-year fixed 15-year fixed 5-year ARM
This week’s rate: 5.04% 4.47% 4.55%
Change from last week: +0.03 +0.01 +0.03
Monthly payment: $889.79 $1,259.71 $840.94
Change from last week: +$3.03 +$0.84 -$2.95
Loan process is stricter
Refinancers might find that the loan process has changed since the last time they got a mortgage. In some cases, lenders require more paperwork than they did a few years ago. In all cases, lenders are stricter about the little things.
One frustrated broker puts it this way: “Hey, Ms. Borrower, I know I have three months’ statements from you, each being seven pages in length. But, you know, one month only has partial text showing the page number as a total number of pages. Looks like when you copied them, some of the text was cut off. Yes, I know everything else is the same. Sorry about that, but I need you to copy them over and submit to me before I can draw docs.”
Will a loan underwriter really ask you to resubmit documents because the copier cut off the words “Page 4” at the top of the document, where it says, “Page 4 of 7”? In some cases, yes. Lenders have become stricter because the investors, such as government-controlled Fannie Mae and Freddie Mac, refuse to buy loans with even minor flaws in the paperwork.
More precisely, investors force the lenders to buy back these loans. It’s as if the government could require a car dealership to take back a car for a full refund because of a stained floor mat, forcing the dealer to sell the vehicle at a loss on the used-car lot. It would have been easier and cheaper just to replace the stained floor mat.
Lenders, then, require your paperwork to be spotless. They want some other things, too. For example, IRS Form 4506-T, which authorizes the lender to get a transcript of your past tax returns from the Internal Revenue Service. Form 4506-T used to be required on stated-income loans. Now lenders want them on all mortgages. You won’t get a refinance without signing a 4506-T. If your tax return says you earned less than you really earned, the lender is going to believe the numbers that you put on the tax return. If that means you don’t qualify for the loan, tough luck.
Bob Walters, chief economist for Quicken Loans, says the paperwork requirements aren’t onerous for people who draw wages or salaries and nothing else — people whose W-2s reflect all their earnings. “People who are self-employed, or have bonuses, or overtime or get tips, find life more difficult,” he says. “They have to bring in tax returns for the last two years and pay stubs and bank statements.”
Paper chase
Jim Sahnger, mortgage consultant for Palm Beach Financial Network in Stuart, Fla., recommends that refinancers gather paperwork before applying. Every borrower won’t necessarily need all of the following, but Sahnger advises prospective refinancers to have a file containing: most recent pay stub, two to three months of bank and brokerage statements, and the last two W-2s and tax returns.
“If you have any — and I mean any — self-employment income or losses for something you do on the side, let us know if you walk in as a salaried borrower,” Sahnger says.
Other paperwork that you should have on hand if you want to refinance: your homeowner insurance policy, title insurance policy and property survey. “Be prepared to be asked for more information,” Sahnger says. “This is not a loan from years ago. You can still get one; now you just have to prove you deserve it.”
One other thing: Be realistic about your home’s current value. Your home isn’t worth what you paid for it, plus the money you spent on improvements. Your home is worth what a well-informed buyer would pay for it after considering comparable properties. A lot of homes have lost value in the past four years.
For an uncomplicated refinance, the house needs to be worth at least 10 percent more than the total amount owed. It is this requirement that disqualifies the most buyers. Paperwork hassles pale by comparison.
Gary Miller
Mortgage Loan Originator
Century Bank
P.O. Box 1507
Santa Fe, NM 87504-1507