Marc's Mortgage Matter's

As mortgage rates hit new lows every week, the number of homeowners seeking to refinance their homes has spiked to its highest level in five years. However, many have been unable to win approval for their applications. And even some of the homeowners who do qualify have backed off, once they found out how difficult it was to get the advertised rate.

So what should be a bright spot in an otherwise dismal economy — throngs of homeowners locking in low, fixed-rate mortgages that will free them up to spend elsewhere — threatens to become another example of how even the best government intentions do not always pan out.

That was the case when the government, through its Troubled Asset Relief Program(TARP), started pumping money into banks with the goal of shoring up their balance sheets and spurring lending. And it appears to be happening again as the Federal Reserve buys up mortgage securities. The Fed is pushing down interest rates, but that has not been enough to bring the housing market back to life. 
 
While rates are falling, borrowers face higher costs every step of the way, from rising fees for mortgage insurance to added costs that drive up the mortgage rate. At the same time, lenders have become more cautious about whom they will lend to, as more people lose their jobs, watch their incomes decline and fall behind on their bills. One of the biggest stumbling blocks for many people is their plunging property values, which have erased all or most of the equity in their homes. Others cannot meet the increasingly stringent credit requirements, which either disqualify them or increase their costs. 

On top of that Fannie Mae, and Freddie Mac, the two big mortgage guarantors now under government control, have raised the fees they charge lenders on loans that they insure or buy. Those fees — in part the result of the two agencies’ losses in the housing market — are passed on to borrowers, with Fannie’s latest increase about to go into effect. While the agencies have always charged more for mortgages for riskier borrowers, their fee structure has steadily risen over the last year. Applicants with credit scores above 720 and equity of more than 20 percent in their homes still generally escape these fees. Other applicants may qualify for refinancing but must pay the higher costs.

All borrowers pay a fee known as an “adverse market delivery charge” of 0.25 to 0.50 percent of the loan amount. Fannie, for example, also imposes a fee of 0.75 percent on owners of a condominium or cooperative apartment with less than 25 percent equity. Borrowers with a home equity loan or line of credit may pay another Fannie charge of up to 0.50 percent, depending on a variety of factors. And borrowers who want to take cash out of their homes when they refinance — if they have enough equity — are charged a fee ranging from 0.25 percent to 3 percent of the loan amount, depending on their credit score and amount of home equity. Borrowers have a choice of either paying these fees upfront or wrapping the fees into their mortgage rate. 

Many borrowers with less than 20 percent in home equity have had better luck getting loans or refinancing through the Federal Housing Administration, which insures lenders that make loans that meet its guidelines. F.H.A. loans require as little as 3.5 percent down, though borrowers pay slightly higher interest rates, as well as an upfront mortgage premium of 1.5 to 1.75 percent. For some borrowers, F.H.A. loans have become a more cost-effective option. In fact, F.H.A. loans now account for 20 percent of outstanding mortgages, up from 3 percent in 2006.