Interest rates may have reached their lowest level in nearly 40 years, but that doesn't necessarily spell relief for South Florida's struggling homeowners.
BY MONICA HATCHER
mhatcher@MiamiHerald.com
Recent drops in interest rates have homeowners rushing to call local banks and mortgage lenders about refinancing. Loan applications are pouring in.
Yet, South Florida homeowners are mostly getting a big fat ''No!'' from the bank when they ask to refinance. The chief reason: Falling home values mean they owe more than their homes are worth.
''We got 53 calls to my branch on Friday,'' said Todd LaPenta, a private mortgage banker at Wells Fargo on Lincoln Road in South Beach. ``We could only help about five.''
Average rates for a 30-year, fixed-rate mortgage fell to 5.14 percent on Wednesday, the lowest level since 1971, reported Freddie Mac, the government-controlled mortgage giant. The number of people applying for mortgages rose by 50 percent last week, the Mortgage Bankers Association also reported.
It's another painful irony of living in one of the nation's worst hit housing markets -- borrowers who owe more than their homes are worth cannot refinance without ponying up thousands of dollars in cash to cover the difference between the old and new loan amounts.
And they're the ones in most dire need.
In South Florida, four in 10 homeowners who bought or refinanced over the past five years owe more on their home than it is worth, according to sales and mortgage data analyzed by Zillow.com, a web-based real estate services firm. Many of them chose adjustable-rate loans and other expensive mortgages because that was the only way they could afford the payments.
Justin Miller, a broker with Resource Mortgage Group in Plantation, said the current rates, which essentially amount to ''free money,'' are, in a sense, unavailable to those most in need.
''This is only putting people who are in a good position in a better position,'' Miller said.
Even when borrowers have the home equity they need to avoid a big cash payment, they must still meet rigorous underwriting demands that have become the bane of consumers. Equity refers to a borrower's ownership stake in a property, usually the home's market value minus any loans owed against it.
Before LaPenta begins processing an application, he said he makes sure customers are aware of the essential criteria needed to refinance: 20 percent equity in the property, a homestead exemption, a credit score of 700 or higher, a mortgage debt-to-income ratio of no more than 45 percent and the ability to fully document income and assets.
''If not, we're just wasting our time,'' LaPenta said. Still, it's hard to turn down desperate borrowers, whose harangues invariably end in accusations of hoarding federal bailout money, LaPenta said.
'They say, `We provided all the billions and you guys aren't helping us. Why aren't you lending it?' '' said LaPenta. He tells them he works on the front lines and has no say in the bank's underwriting policies.
Still, if you can qualify, the low interest rates offer a welcome financial boon.
Joshua Estrin, a dance and drama teacher in Broward County, on Monday locked in a 4.87 percent fixed rate for a 30-year loan on the Plantation home he refinanced in 2006, reducing his monthly payments by about $300.
''It's wonderful, and I feel very lucky, and every little bit helps. But I'm not the one losing my house,'' Estrin said.
Despite his stellar credit score, his lender showed no leniency in his application, he said. He also had 20 percent equity, though he had to have his home reappraised because the bank's automated valuation found him short by $7,000.
''The bank was putting me through the wringer, so I can only imagine someone who has been responsible, then being hit with hard times and now has a 600 or 650 credit score,'' Estrin said.
When it comes to cheap financing, home buyers -- not refinancers -- may be the biggest winners if they can brave the prospects of further price declines.
Though it still may be too soon to tell whether low rates will spur new sales, Madeleine Romanello, a real estate agent for Douglas Elliman Florida, said there are lots of fence-sitters still too worried about the market to take the plunge. People have learned from the boom years the perils of buying an overpriced property just because interest rates are low, Romanello said.
Florida, however, is basically ''on sale'' right now, Miller said, and buyers would be foolish not to take advantage of low home prices and low interest rates. Even if home price fall another 7 percent in six months, he said, buyers would still have a lower monthly payment if they financed their purchase at today's rates.
''The hardest thing about my job right now is seeing the great deals everybody else is getting,'' Miller said.
source:
http://www.miamiherald.com/business/story/825962.html
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