Saturday, 24 November 2007

Refinancing can be difficult to enjoy

Hope for the people to refinance a home, it should be good news: The yields on U.S. Treasury securities fall -- who are in lower mortgage interest rates.

But the head of the refinancing may not be as big as some expect, because of the continuing unrest in the housing market. Some borrowers could find the savings are not as great as expected -- or that they be closed, the refinancing is complete, as lenders tighten their standards.

For weeks, the yield on the 10 years Treasury notes were moving lower. They fell to 4.02% on Wednesday and slipped to 4.01% on Friday, a new low since September 2005 -- and meaning are low enough that mortgage rates are also coming.

Despite the industry problems, some lenders are trumpeting the news of lower prices to lure borrowers to consider refinancing.

Lender targets reeling from rising home loans and foreclosures are stricter about lending. They are also demanding higher "risk premium" (on the amount the Treasury interest, the borrower must pay as compensation for the risk that the loan will not be repaid in full), also from the best borrowers.

"There is no doubt that the risk premium expands," says Doug Duncan, chief economist of the Mortgage Bankers Association. As mortgage losses have climbed and credit markets dried up the contract, this premium.

For example, interest rates on conforming 30-year fixed mortgages fell slightly in the last week to an average of 6.26%, according to HSH Associates, a publisher of consumer-loan information in Pompton Plains, NJ That is a recent peak of 6, 76% in mid-July, or 0.5 percentage points.

But Treasury prices continued to fall. The "spread" or gap between 10 years Treasurys and 30 years fixed mortgages has significantly to 2.22 percentage points now from just 1.52 percentage points in June, according to HSH.

This explains why it is not the refinancing of the savings that some house owners had hoped.

"I would have expected ... prices to be better than they are," says Steven Walsh, a mortgage broker in Scottsdale, Arizona, USA, Mr. Walsh says that some of its borrowers have him to refinance and take advantage of lower prices But away with empty hands.

In other cases, borrowers want to refinance are prevented by stricter lending standards, especially in markets where home prices are falling, and the lenders always very careful assessments.

For the week ended Nov.16, the refinancing of mortgage activity share increased to 50.3% of total applications from 50.2% in the previous week, according to the Mortgage Bankers Association.

Borrowers with good credit and if refinancing, a portion of the equity in their homes are best positioned to benefit. "To ensure a successful refinancer in this market, they must be much more of a traditional type of borrower," says Keith Gumbinger, a mortgage analyst with HSH Associates. "They have some equity in your home. You need the documentation of your income or assets. You have to be reasonable or good credit."

Martin Quijada, an architect from Gilbert, Arizona, USA, the perfect credit, was looking for refinancing of its mortgage loans recently. But two banks with good prices would not sign off on the assessment, says Mr. Walsh, his agent. One other bank has agreed that the assessment was good, but had "terrible price", said Mr. Walsh.

"I was with a much simpler process," said Quijada, which plans to hold for the moment, hoping to get a better price later.

But Mr. Walsh warns that even if prices fall further, Mr. Quijada still have to deal with the assessment.

Many borrowers with good credit have recently been in such roadblocks. According to the Federal Reserve's Senior Loan Officer Survey in October, 40% of respondents in the United States have reported that they tightened their lending standards on prime-time mortgages, compared with only 15% reported has done in the July survey.

Borrowers with good credit can benefit from the lower interest rates, says Duncan of the Mortgage Bankers Association, "but if one in a market where property values fall, it may be no great differences." It is a particular problem when the loan balance is greater than the current value of the house.

The message is for the borrower, the mixed "jumbo" mortgages. These are the loans in excess of the 417000 dollars for those who purchase and guarantee mortgage institutions Fannie Mae and Freddie Mac.

On one side are the prices to 30 years fixed Jumbo mortgages have dipped below 6.97%, according to HSH Associates, after reaching as much as 7.46% in August. But that is still well above the 6.60% average for these loans at the beginning of June, when the credit market was less nervous, and the gap between jumbo and conforming loans was close.

For people looking to borrow or refinance, shopping around is very important in the current environment. For example, Mr. Gumbinger says, banks or credit unions, the question on the mortgages they -- as opposed to selling them to other investors in the form of mortgage securities -- can now offer better prices because they are not dependent on securitization and therefore possibly more capital for lending.

"One can not assume that the price to loan lender A is the most competitive prices on the market," he says. "There is a variety of prices."

Melissa Cohn, a New York mortgage broker, says its customers who are to refinance in the next three to six months too soon. "Lender guidelines will continue to get tougher in the coming months, before they are turned down again," she says.