Hard News

While you weren't watching ...... mortgage rates were tumbling

But joining the refi rush won't be so easy this time

By Michael Oneal and Mary Umberger | TRIBUNE REPORTERS
January 26, 2008

With long-term mortgage rates sinking to their lowest level since March 2004, it looked like one of those golden opportunities to refinance the home or condo this week.

But many who rushed out to their banker or mortgage broker discovered that it is much more difficult to borrow money than it was even a few months ago.

The real estate crisis dragging down the rest of the U.S. economy has frozen the market for many borrowers. As prices fall and lenders wallow in a sea of losses, only those with gold-plated credit ratings and ample equity in their homes are sailing through the application process, mortgage bankers said.

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"There's a widening gap between those people who can qualify for a mortgage and get great rates and those who can't," said Barton Pitts, president of Professional Mortgage Partners in Downers Grove. "It's a totally different world."

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What's happened is that banks and mortgage lenders have not only clamped down on exotic, subprime loans they can't sell in the secondary market, but they also have tightened rules or raised the cost for medium quality and jumbo loans that make up a big part of the market. They have demanded more equity, tougher appraisals, and higher credit scores.

Here it is. The coffin of the housing market is being hammered shut. Even here in the "it's different here" Chicago. With out getting a loan to match those crazy asking prices, the market will tumble.

The "tougher appraisals" are the two harshest words in the whole article. What I in vision here is the new and improved appraiser will under cut the sellers outrageous asking price. The Greedy Seller won't budge on the asking price. The foolish buyer will tell the bank that they really need that house. The bank will agree, but the 30 year fixed loan will be for the appraisal. A bonus loan at a much higher rate will be given to make up for the difference. We shall see.

Mostly gone are the once-popular "no doc" loans that required little or no proof of income or assets. And new requirements demand more equity as a percentage of home value in weak markets.

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"What has gone away is you can't come in and lie to me," said Ken Perlmutter of Perl Mortgage in Chicago.

As if the mortgage broker was the victim! The once "popular no doc loan" is fraud, pure and simple. Both side of that contract should the imprisoned and fined.