[quote=joec]I always found it strange that if you had a ton of equity in a home, why a bank would not want to refinance you. I assume if you had 40% equity, won’t they just get your home at 40% off if you defaulted?
The whole problem with the past housing bubble was no money down. If they required 20%+ down, the housing bubble probably wouldn’t have happened.[/quote]
joec, the problem is that lenders don’t want your home at all. It is (apparently) too much hassle for them to foreclose on delinquent borrowers, ready the property for sale and carry it for a time (maintenance, insurance, taxes, MR, HOA fees) until it is resold. The vast majority of lenders won’t take a chance on people who can’t demonstrate on paper that they have enough monthly income to make the mortgage payment every month, even if it DOES represent 60% (or less) of their home’s value as appraisals are subjective.
This is part of the reason why many people who are semi-retired or retired pay all cash for RE. They may have demonstrated for many years on their credit reports that they can make mortgage payments which are even higher than that of the mortgage they might seek today but their “numbers” don’t pencil out on a mortgage application such as to be “qualified” to take on a mortgage. The other reasons they don’t take out a purchase-money mortgage are that its initial cost is too prohibitive due to the length of time (possibly just a few years) they’re planning on keeping the mortgage. IOW, they’re only planning on keeping a mortgage until they’re 59.5 years old (and can access retirement funds to pay it off), or, in the alternative, when they are eligible to collect SS (coinciding with leaving their jobs).
Just 12 years ago, a conventional mortgage of 275K or less (conforming) only cost a (prime) borrower $2800 to $4400 to close. Now a mortgage of the same size costs $7000 to $9600 to close, due to hikes in lender’s and appraisal fees and escrow, title and recording fees. Although the ancillary fees can’t be changed, the lender fees today are too high for someone who is only going to hold the mortgage for a few years. If a lender advertises $0 in closing costs, there is a catch. In this case, the fees are built into the interest rate, the terms or the APR or all three. In the absence of the latter two, the mortgage broker is collecting a yield-spread premium from the lender between the rate contracted for and the prevailing rate and the mortgage is recorded under “MERS” and immediately resold.
“Old school borrowers” (such as myself) will not sign up for these shenanigans when seeking purchase or refinance money. We want to borrow our mortgage money from a local direct lender (ex. Downey Savings, Chase, Union Bank) where they will guarantee 100% on our note and trust deed that they will hold our loan forever and keep it in their “portfolio.” Twelve years ago, if a borrower put down at least 20% or had 20% equity (no PMI was involved) and did not trouble the lender with a (labor-intensive) impound account, a portfolio lender only charged them a doc prep fee of $150 and a $75 “tax service fee” (to check if the borrower pd his taxes at every installment). This amounted to ~$225 total in “lender fees.” If docs had to be “redrawn” for another payment date/closing date, the “redrawing” fee was $75. These lenders offer their portfolio borrowers payment flexibility and other conveniences such as multiple “brick-and-mortar” locations to make payments in on the last day at the last hour before a late charge kicks in. In addition, they were not required to adhere to FF guidelines and thus were not required to participate in “loan modifications” or “short sales” of their portfolio mortgages and in recent years could foreclose timely in accordance with state law. As such, their closing costs tend to be lower due to lower, more straightforward lender’s fees. These lenders can also make their OWN decisions re: a borrowers creditworthiness and aren’t required to adhere to strict front and back-end ratios when making loans to creditworthy individuals who have a long history of paying their bills on time.
I’ve strayed off the subject of your answer, joec, but, in short, lenders consider the borrower’s qualifications on their mortgage application and credit report as having more weight than the appraisal when deciding if they will loan purchase money or approve a refinance. You might think your house is “special” and any lender would want it for 60 cents on the dollar but when all is said and done, they don’t.
IIRC, you posted here before that you were self-employed. If you are having trouble refinancing but otherwise are a prime borrower, I would suggest you contact one of the above three major lenders among a slightly larger list of portfolio lenders who do business in CA.
Note: Chase also makes mortgages backed by Freddie Mac in addition to those they keep in their portfolio (not to be confused with one another).
