Mortgage Refinancers Face Stricter Rules.
President Obama urges Americans with up-to-date mortgages to refinance their homes. The call comes as interest rates sink to their lowest levels in nearly 40 years. The Mortgage Bankers Association reports refinance applications are already up nearly 90% since February. But, those joining the "refi rush" now will also find they must meet stricter rules for documentation. WOSU's Christina Morgan reports The "refi rush" is well underway in central Ohio. Northwest Title Operations vice president, Liz Davis, says some homeowners even refinance multiple times.
"We've seen clients coming back in one year rates so much lower now, they decide they can refinance, get a shorter term of mortgage and still pay the same amount of money." Says Davis. "I've been in this business for 42 years, and I don't remember anything like this before."
Donna Stevenson is senior vice president of Northwest Title. She sits at what is called "the closing table, " working for the lender. The title agent prepares and explains each of the documents being signed by individuals who are making what for most is the largest purchase of a lifetime.
"Low interest rates, mistrust in general public, economic hardship of so many Americans are changing the way property is transferred and the way money is loaned." Says Stevenson. Liz Davis estimates the percentage of people refinancing a loan who understand all of the documents they sign has risen considerably in recent years to perhaps 75%. And these are people who have been through the process before. The percentage of first time homebuyers who understand what's going on is far lower. And this apparent lack of awareness was thrust into the public spotlight last year by the bursting of the real estate bubble and the discovery of extensive loan fraud. The response is underway. One early addition to the stack of papers at signing might be described as a quiz. Stevenson says this document asks borrowers: why they are refinancing
"Lower rate? Extending term of loan? Significant different in terms of loan - from adjustable to fixed rate?" Even if borrowers fail the quiz, the closing process continues. More new forms are on the horizon after the U-S Housing and Urban Development Department - for the first time in 30 years - issued mortgage reforms designed to protect consumers and help them shop for the lowest cost loan. Stevenson and Davis say one of those forms, The Good Faith Estimate, will help avoid surprises for borrowers at the closing table. HUD estimates that one form can save consumers $700. at closing. Those preparing to join the refi rush can expect changes at all levels of the process - including home appraisals. Maggie Hambleton, president of her own appraisal company in the Columbus area, has nearly 40 years experience in the business. She is also active in oversight and disciplinary procedures and serves as an expert witness in fraud cases. Hambleton admits there are such things as "drive by appraisals," where the appraiser never enters the house. She says the type of appraisal is determined by the lender, but she acknowledges some bad apples in the appraisal bunch
"For a long time, we got really bad press. Just tell us what you want and we'll get there. And some appraisers do do that, but the majority do not." Hambleton says her company follows Fannie Mae and Freddie Mac requirements. Those are changing. Comparable sales - used by appraisers to estimate what similar property is going for in area - must now be within the last three months if possible. Given the decline in home sales, that can be challenging. Hambleton says appraisals now must include residential listings in the area as well as foreclosures or short sales.
"It's requiring appraisers to do much more time doing research on the market area and their comparables than ever before because it's critical to get a value that is not over or under inflated."
Hambleton says the added requirements add time to the appraisal process. A single form, which came out on April 1st, adds as much as one hour to the appraisal. Consumers considering refinancing can also plan on spending more time preparing for their meeting at the closing table. New federal forms coming online can be seen at HUD-dot-gov. Click on "Search /Index" and go to RESPA - Real Estate Settlement Procedures Act. President Obama suggests the site: making-home-affordable-dot-gov. Click on "refinancing" and take a short quiz.
Christina Morgan WOSU News