The share of applications filed for a mortgage refinance dropped again last week. Mortgage marketing executive, Bryan Dornan believes, “the decrease in refinance applications can be directly attributed to homeowners becoming more educated on what is need to qualify for a refinance loan in today’s credit crunch.” Dornan continued, “Borrowers have either been denied recently or they understand that have late payments on their mortgage payment will prevent them from qualifying with traditional lenders.  Borrowers continue to seek help refinancing existing mortgages dropped to 68.1% of total loan applications from 69.3% the previous week.  The four-week moving average for all home mortgages was up 1.6%.

Adjustable-rate home loans made up 4.7% of total applications, up from 4.4% the previous week.  Rates on 30-year fixed-rate mortgages averaged 5.03%, up from 4.94% the previous week, while 15-year fixed-rate mortgages averaged 4.35%, up from 4.33%. The one-year ARMs interest rate grew to 6.8% from 6.67%.

■ Interest rate. “If you can save half a point or more on your interest rate, that can be a good indicator to refinance,’’ said Kay Sandusky of Citizens National Bank of Southwestern Ohio. Sandusky added: “If it is going to cost you $2,000 to do the refinance and you are saving $200 per month, do the math and consider how long you will be in the home and if that is a savings to you.’’ “How long you’re going to be in the home is a big factor,’’ Penner said. “If someone is going to live in the house three to five years, [refinancing] may not be a great idea.’’
■ Total cost benefit. Kim Penner of Union Savings Bank said you have to consider total costs when considering refinancing. “Your lowest interest rate alone is not always your best deal,’’ Penner said. “You have to see if it makes sense to get a lower rate if your costs are high.’’
■ Short term vs. long term. “Think about what term of loan you want,’’ Penner said. “Is cash flow an issue? Are you looking at retiring?’’ He added that the sooner you pay off a loan, the more you save on interest payments. “The difference in interest could be $40,000, $50,000, $60,000,’’ Penner said. Henson is retired and his wife is self-employed, but he said they chose a 30-year rate because it was a more conservative approach, given the economic climate. They “decided we could make a 30-year into a 15 by paying more on the principal each year,’’ Henson said. “With a 30-year rate, you have the flexibility if you want to pay extra.’’
■ Credit score. Borrowers who have at least a 740 get the best terms. If your credit score is lower, you can still get a loan, but at a higher interest rate.
■ Know your home’s equity. “You have to have 20% home equity ask for a conventional home loan without private mortgage insurance,’’ Sandusky said, though there are other options. FHA home loans have mortgage insurance, but if your credit is outside of the conventional box or if you have no equity, talk to a FHA mortgage company, because these government loans may be your best option for refinancing.
■ Talk to a professional. “I ask a lot of questions about the borrower and offer options,’’ Penner said. Be careful shopping for a mortgage online. Don’t let banks obtain your credit report each time. “Multiple inquiries on your credit report in a short period of time can harmful to your credit,’’ Sandusky said. “Know your credit and tell the bank.’’

In addition, a moderate net fraction of banks reported weaker demand from prime borrowers for residential real estate loans. Demand from customers seeking nontraditional mortgages also weakened further over the survey period. Only a small net fraction of banks reported having tightened standards on revolving home equity lines of credit over the past three months, but a large net fraction of banks continued to report lower demand for such mortgage loans.

Demand for both businesses and households across all major categories of loans weakened on net over the past three months. 64% of respondents reported that business inquiries about new or increased credit had stayed about the same over the last three months while 13% reported an increase and 25% a decrease.  A large proportion of respondents reported that their banks were relatively unchanged in their approach to consumer lending.  Over 80% said that their banks policies were unchanged when it came to approving applications for installment, consumer, and credit card loans.  However, a substantial net fraction of banks said they had reduced credit limits on credit cards and had become less likely to issue cards to customers who do not meet credit scoring thresholds. 

Respondents to the October 2009 survey had indicated that they would tighten many of their credit card policies as a reaction to passage of the Credit CARD Act.  Home loan terms were seen as being a little more in flux but the net %ages of respondents who tightened those requirements was lower than in the previous quarter. When considering lending to large firms – those with annual sales of $50 million or more 76 % reported there had been no change in the maximum home equity credit lines, 16% reported a tightening in the maximums and 7% said those terms had eased. Maximum maturity dates were unchanged in 83% of reports. Only 64% of respondents reported no change in the cost of credit lines while over 23% reported that these standards had tightened somewhat or considerably. Close to 26% reported that the spread charged to commercial borrowers had widened over the last three months compared to 58% that reported it unchanged. About 10% reported they had tightened collateral requirements, the remainder reported no change. Figures for lending to smaller companies varied only slightly from those reported for large firms. Read the original article at Mortgage News Daily

The FHA said it would eject Strategic Mortgage Corp., of Oklahoma City, Okla.; ProMortgage Inc., of Claremore, Okla.; and Americare Investment Group Inc., of Arlington, Texas. It suspended Home Mortgage Inc., of Burr Ridge, Ill., for six months. The FHA said it ejected Strategic and ProMortage for failing to uphold FHA loan standards, including charging excessive fees and having poor quality controls. Americare violated terms of a previous settlement, and Home Mortgage failed to disclose the indictment of a part-owner, it said.

Representatives for Strategic and ProMortgage didn’t respond to inquiries seeking comment. Americare and Home Mortgage couldn’t be reached.  The FHA, which doesn’t make loans but insures lenders against losses, has seen its capital cushion erode sharply amid rising mortgage defaults. Officials have promised to be vigilant in cracking down on lenders it believes are putting the agency’s reserves at risk.

Early this morning, the Mortgage Bankers’ Association released their weekly applications index. The MBA survey covers over 50 % of all US residential mortgage loan applications taken by mortgage bankers, commercial banks, and thrifts.  The data gives economists a look into consumer demand for mortgage loans.  A rising trend of mortgage applications indicates an increase in home buying interest, a positive for the housing industry and economy as a whole.  Furthermore, in a low mortgage rate environment, such a trend implies consumers are seeking out lower monthly payments which can result in increased disposable income and therefore more money to spend on discretionary items or to pay down other debt.

The report indicated a 3.3% decline in purchase application activity and a 15.1% decline in refinances.  Of note, the MBA issued a rare comment: “Although rates remain low, there appears to be a smaller pool of borrowers who are willing and able to refinance at today’s rates.” I agree, mortgage rates in the low 5% range are still extremely aggressive when you look back at the history of mortgage rates, but I think a more accurate statement would have been “many borrowers want to refinance to take advantage of near record low mortgage rates, but the tightening of lender guidelines has made it too difficult for borrowers to qualify.”   Maybe that’s what the MBA was really trying to say? What is your opinion?

For more on the MBA Applications Index and the potential impact on the Fed’s intentions to exit the MBS market, check out the other mortgage news stories.  We also received another look into the strength of housing: the New Home Sales survey. This survey is primarily based on a sample of houses selected from building permits. Since a “sale” is defined as a deposit taken or sales agreement signed, this can occur prior to a permit being issued. Changes in sales price data reflect changes in the distribution of houses by region, size, etc., as well as changes in the prices of houses with identical characteristics. It takes four months to establish a trend of new home purchases.

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During the coming months, mortgage loan shoppers should ask competing lenders how they handle pricing when scores come in low. Ask whether the lender will inform you if something in your files is dragging down your scores and raising your fees and rates. We recommend that you request a free credit report in advance to submitting home loan applications. Start by visiting annualcreditreport.com and requesting a free credit report. It is more important than ever, because in 2010 because virtually all major mortgage sources including Fannie Mae and Freddie Mac have raised their credit-score cutoffs for the best rate quotes and lowest fees. > Go online  and read the complete credit repair article.

HUD estimates that consumers could save almost $700 in costs and fees per mortgage loan on average as a result of the new requirement, which is one of several changes to the Real Estate Settlement Procedures Act (RESPA).  In addition to the updated literature, the agency has set up a RESPA “FAQ” section and other information on a dedicated RESPA page so that consumers, settlement service providers and lenders can gain a better understanding of the new rules.

Here is the location of the .pdf of the booklet that you can save or print out for your reference. http://portal.hud.gov/portal/page/portal/HUD/documents/Settlement Booklet December 15 REVISED.pdf

Mortgage lenders are now required to provide loan applicants with the following:

- Good Faith Estimate—provided at the time of application to borrowers to outline the home loan terms and Total settlement costs.

- HUD-1/HUD-1A Settlement Statements—to inform borrowers of final costs at settlement.

- Servicing Disclosure Statement—to inform the borrower whether another financial institution may be servicing their loan.

- Settlement Cost Booklet—provided within three days of application to inform the borrower of fees involved in home purchase settlement.

Unlike the Federal Deposit Insurance Corporation , which recently proposed that banks pay three years of insurance premiums at once in order to replenish the FDIC’s reserves, FHA can’t require current borrowers to pay more. But it can change the rules going forward that will make it more difficult to qualify for an FHA loan.  According to a senior official at the Department of Housing and Urban Development , conversations are ongoing to determine what will make the most sense.  “Nothing will be taken off table,” the official said. “Everything needs to be assessed through the lens of the FHA core mission as well as the broad economic policies of the Administration with regard to stabilizing housing.”