Throw the responsible home owner a bone: Abolish appraisals for refinancing
June 25, 2011 7:39 PM
Harold is a responsible guy.
He pays his mortgage on time, pays his taxes on time, builds his savings and doesn’t live beyond his means.
So what is wrong in Harolds life? Harold can’t refinance his house. What appears to be the problem? Harold’s house has dropped in value, along with everyone else’s in the country. So though he has a good FICO score, very low debt to income ratio and plenty of liquid assets, his house appraisal will come in too low for any bank to approve a rate and term refinance.
So what can be done to bring a bit of joy to Harold, and the millions of Harold’s out there, to help them take advantage of historically low interest rates by refinancing their homes?
A one year moratorium on using appraisal values for rate and term refinances would help. This moratorium would only be used for borrowers who are not delinquent and also qualify on credit, income and assets. Homeowners in this category have proven themselves to be excellent credit risks; their only flaw is in holding a mortgage on a home during a period of plummeting home values. There are plenty of homeowners in this unfortunate situation. A large number of home owners wouldn’t mind having a couple hundred extra dollars in their pocket nor would our economy mind either.
In an ideal world, they would be given an opportunity to take advantage of the historically low interest rates, in order to ease the pain of their loss of equity. I realize such a moratorium would not be a cure for the housing crisis, nor is it feasible that Freddie and Fannie, FHA or any banks would embrace this idea. We spent time, energy and money helping delinquent homeowners get 2% interest only loans, and yet the credit worthy homeowner cannot refinance his or hers 6 ½% loan to 4 ¼% today. The much hyped HAMP program which promised to refinance four million homeowners has fallen far short of that goal, because many borrowers do not have Freddie or Fannie loans.
So in this world, the homeowners being given help are those who haven’t made their mortgage payments. The Fed spent over three trillion dollars bringing mortgage rates lower, and yet many non delinquent qualified borrowers have had refinance applications rejected, based upon their current appraisal. Harold and others like him don’t want to be sixty days late on their payments, in order to qualify for a lower interest rate. If you pay your mortgage on time, have a great credit score, plenty of liquid assets then you are out of luck when trying to refinance in 2011 in America.
Logan Mohtashami is a senior loan officer in his family run Mortgage Company, AMC Lending Group, which has been providing mortgage services for California residents since 1987. LoganMohtashami.com