lostkitty, this is my laywoman’s comments on what could prevent a refinance:
1) current value is less than borrower’s home value, due to falling home value and too much equity withdrawn
2) borrower has at least one mortgage late payment, so lenders don’t want to touch him
3) borrower’s income is too low for a loan at today’s 6% rate; he could qualify when Fed funds rate was 1%, 2%, 3%, 4%, but not at today’s Fed funds rate of 5.25%
4) prepayment penalty of $10K or higher; I know several people who cited this as a reason they are delaying refinance; they hope the Fed will lower interest rates next year and by then their prepayment penalty will be expired
5) no money to pay closing costs. Closing fees are 1% or more of the loan amount, and cash-poor people have to put the closing fees into the loan amount. If the home’s value is too low, they cannot fold in the closing costs, so basically, they lack the money to pay for a new loan
6) Once the State of CA follows the other 20 states that have adoped the new lending guidelines, many people will just not qualify for another loan they could afford
7) Borrower lost his job, because he’s in construction, real estate, lending. No job, no loan. Thousands of construction workers are already laid off.
8) Borrower has too much debt, so the debt/income ratio is too high for a new loan. Maybe they took out a HELOC, car loan, and now their expenses are too high.
Nonetheless, there are still plenty of people refinancing, as proven by the Mortgage Banker Association Refinance Index.
It’s interesting that Fannie Mae (or Freddie Mac) said that 88% of their refis this year are at a higher interest rate, so people are refinancing into more expensive loans just to get cash out. (The CEO did not say it was to transfer from a lower cost adjustable loan into a more expensive fixed rate loan – he specifically said it indicated cashing out. So he may be referring to conforming loans which refinanced, rather than all loans.)
Give a U.S. citizen a dollar and he or she will spend two. Thanks to this mentality, the prices of homes have sky rocketed over the last few years. Now the local governments can collect more in property tax while thumbing their noses at us. I have always bought with cash and have never borrowed money, not even when I bought my house. I have since sold my house and am now waiting for the housing market to collapse. It is taking far longer than I expected, but I know I am doing the right thing by renting. I will be patient and I know the right time will come for me to buy when I return to San Diego. I harbor no sympathy for those who were irresponsible enough to drive the prices of homes up by latching on to free money. I hope interest rates go to double digits and home prices plummet like never before. I will then chuckle at the state while watching the avaricious local authorities try to manage spending with less property tax revenue. My earnest hope is that people will start treating home ownership as something they should strive to pay off and live in for the sake of having shelter not as an investment that yields the state more in tax revenue.
