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Where are the refinancers?

By Polyana da Costa · Bankrate.com
Thursday, August 4, 2011
Posted: 1 pm ET

Mortgage brokers say since rates plummeted this week, they have been swamped with calls from borrowers who want to refinance. But many of these calls don't have a happy ending.

Why? Because millions of borrowers can't refinance. Nearly one in four homeowners is underwater, meaning the borrower owes more on the mortgage than what the house is worth.

For these borrowers, the low rates and the inability to refi are like a slap in the face.

Meet Jeremy Sloane, a tax attorney in Orlando, Fla.

Sloane paid about $342,000 for his house in 2006 when he moved from Baltimore, Md., to Orlando, Fla., in 2006. He made a $25,000 down payment and took out two mortgages, one at about 6 percent and a second mortgage at 8.5 percent. His house is now worth about $150,000, he says.

He has three children and wishes he could sell the property and upgrade to a bigger home. But he can't. He tried to refinance his loans to lower his mortgage payments so he could afford to rent the house and buy a new one. But again -- he can't.

Despite his 800-plus credit score, stable income and never having missed a mortgage payment, his lender, as well as most other lenders, refuses to refinance his loans because he is underwater.

Nearly 11 million borrowers are in a similar situation, according to research firm CoreLogic.

Some argue the frustration these borrowers face may lead to more foreclosures as borrowers get fed up and walk away from their mortgages.

"They won't do anything unless you stop making your mortgage payments, which I'm not willing to do," Sloane says. "It's not the right thing to do and I don't want to hurt my credit."

Rob Nunziata, president of FBC Mortgage in Orlando, says he has dozens of clients who want to refinance but face the same obstacles as Sloane.

With mortgage rates at rock bottom, those who bought or refinanced during the housing boom -- when the rates were high -- could save a substantial amount of money if they refinance now. Rates are so low that most of the borrowers who got a mortgage more than four or six months ago could potentially benefit, Nunziata says.

"If these (underwater) borrowers could refinance it would help the economy in so many ways," he says. "But they can't."

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6 Comments
Billy
September 26, 2011 at 4:41 pm

This guy only paid 7% down on his house and he's a tax attorney? So instead of paying PMI he takes out a 2nd mortgage to cover the small down payment at rates of 6% and 8.5%? He may have passed the bar but he must have failed remedial math.

20% down and 15yr fixed is the only way to go. If you can't afford that keep saving or look for something cheaper.

Cora Reedy
September 26, 2011 at 9:30 am

I tried to refinance our mortgage with US Bank, who holds the first mortgage. They have a program called (HARP)which has a lower interest than the first. The property appraisal came in
lower than what we owe because the appraisal is based on REO's and foreclosed properties of course. I wrote them a Note of Disagreement and Requesta Reconsideration of Value. They denied the loan.
What they told me is that the investors did not approve because
the value is underwater. I argued they already own the first, we have always paid on time, and we have excellent credit. Why
can't they give us a break. I think this bank is just greedy.
Don't they realize what they are missing if people like us can refinance. This scenario is much too common and it's a shame because this is an opportunity for investors who can earn 3 or 4 percent higher that a regular CD.

walter m
September 03, 2011 at 8:04 am

Lower someones mortgage and they just might pump that back into the economy,makes to much sense.Good luck to everyone trying to refi.

Keith
August 17, 2011 at 12:45 pm

This story sounds WAY too familiar. We bought our home in 2007 for $280,000, and despite aggressively working on the 2nd mortgage in hopes of refinancing, any hopes of equity keep slipping away. Our credit score is over 800, and we've never missed a payment. Still no one wants to touch us for refinancing. I'd have a better chance of coming out on top if I were irresponsible, had poor credit, and simply chose to stop paying my mortgage.

Where's the benefit of good credit and responsibility? The gov't and banks make concessions for those in imminent threat of foreclosure, and I'm hearing the message that responsibility gets you no where. The first bank to step up gets my money and a customer with an 800+ credit rating. Bring it!

Mary Andersen
August 04, 2011 at 9:57 pm

We tried to buy a FNMA house--not such a good deal. The appraisal came in lower than the agreed price (2K) and the realtor/FNMA rep kept trying to deal in the closing bonus and our realty agent's fee. In addition, we were caught in a Catch 22 because repairs had to be made for the bank to close the loan ($200). FNMA only put out addendums referring to as is (we wanted to do the work or pay for it to be done) and requiring forfeiture of earnest money and the bonuses. We could not get a timely agreement because each exchange took them 48-72 hours to reply. We cancelled after 6 weeks of this. This belongs on another blog but I couldn't get it there. Avoid FNMA houses in Tucson, Arizona.