Refinancing Jumps By Record Pace?

Old story – if you just read the headlines, you don’t get the full story.

Applications to refinance home-mortgages jumped by a record amount, as borrowers flocked to take advantage of falling mortgage rates — which were driven down by the government’s announcement that it would step in to stabilize the mortgage market.

Later on in the same Journal story we learn more facts.

How many applications will wind up as actual mortgages remains to be seen. In southeastern Florida, about one-third or less of refinancing applications are leading to loans, says W.D. Acosta, executive vice president for residential lending at Seacoast National Bank, down from as much as 80% two years ago.

“Many of the people who need refinances don’t have the equity in their home or … their job situation isn’t what it was when the loan was originated,” he says. Nationwide, the “pull through” rate is about 55% for purchase applications and 65% for refinance applications submitted in the first half of this year, according to the Mortgage Bankers Association.

This isn’t 2005 again when everyone got approved and easy cash out refinances financed the good life.  Talking to various mortgage lenders, it seems that few of their previous customers can be refinanced due to high debt ratios, lack of equity, restrictions on amount of cash out (non FHA loans usually limited to 80-85% loan to value), very expensive and hard to obtain mortgage insurance for over 80% loan to value, minimum credit score requirements, absence of stated income, absence of “no doc” loans, and  numerous fees (adders) for anything but the best customer.

If you are self employed you probably need a “hard money” loan at crazy high rates.  Many underwriting guidelines are more strict than they were 10 years ago before the easy mortgage money era started.

So the good news headline isn’t really good news but the real news is really good since this is a small step on the path to sanity in the mortgage industry.

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