Low like the Lowest ever Low

The ratio of mortgage payment to median family income is the lowest on record, according to a new report from Fiserv.

The company noted that purchase mortgage payments now account for just 13 percent of monthly median family income nationwide, which is the lowest figure since 1971, when data first started being collected.

In Las Vegas, the ratio has fallen to 11 percent from 32 percent!

Back in the first quarter of 2006, when mortgage lending moved at a frenzied pace and home prices only moved in one direction, the national number was 23 percent.

In areas where home prices exploded upwards, the number was probably beyond 50 percent, forcing many borrowers to go with teaser rates tied to option arms while simultaneously stating their income.

That explains why just a year or so later we experienced the worst housing bust ever.
Families Spending Less on the Mortgage

Nowadays, families are throwing a lot less of their income towards their housing payment each month, thanks to the near-record low mortgage rates and the reduced home prices.

Still, there are few buyers out there, evidenced by the continued weakness in purchase-money mortgage applications and faltering home prices.

The big issue continues to be consumer confidence, which has risen and fallen as new economic dramas unfold on a seemingly daily basis.

Until that business is resolved and the job market improves, it is expected that home sales (and prices) will remain flat.

Meanwhile, mortgage underwriting standards are a lot tougher than they had been during the boom, making it difficult for many to take advantage.

Then there are the millions stuck in their current properties thanks to issues like negative equity.
First-Time Homebuyers Rejoice

Unfortunately, this means many people aren’t able to benefit from this somewhat unprecedented situation, namely those with underwater mortgages.

But first-time homebuyers have the opportunity to get in on the cheap and position themselves much better than existing homeowners.

After all, if you buy now for say $200,000 and your neighbor (who isn’t going to walk away) owes $400,000 for a similar property, you’re looking pretty good.

That’s right. The current homeowner is banking on you, the new buyer, to buoy the housing market and get them back in the black. Assuming that happens you’ll experience some kick-butt appreciation.

Just be patient; it may take a while. Fiserv expects home prices to decline 3.6 percent into mid-2012 before rising 2.4 percent in the second half of 2012 through the first half of 2013.

Cash Out?

The number of homeowners who refinanced with "cash out" continued to decline in the third quarter according to information released on Monday by Freddie Mac. Eighty-two percent of borrowers who refinanced their mortgages during the period either maintained about the same loan amount or lowered their mortgage balance by bringing money to the table. During the second quarter 77 percent of refinances fell into this category.

Of those who refinanced, 44 percent maintained approximately the same loan amount and 37 percent reduced the principal balance. Eighteen percent of refinancing homeowners increased their loan by more than 5 percent, Freddie Mac's definition of cash out. Over the period from 1985 to 2010 the average percentage of cash out refinances was 46 percent.

Homeowners took an estimated $5.3 billion in equity out of their homes. This was the lowest amount of equity removed from the system since the third quarter of 1995 and was substantially below the $6.3 billion cashed out in the second quarter. In the peak year for cash out refinancing volume (Q2 2006) there was $83.7 billion refinanced out of home mortgages.

Homeowners had a median rate reduction through refinancing a 30-year fixed-rate mortgage of about 1.2 percentage points or a 22 percent improvement in their rate, saving them about $2,500 over the first five years of a new $200,000 loan. The median rate reduction in the second quarter was 1 percent.

Freddie Mac's figures indicate that the borrowers who refinanced in the third quarter owned homes that had lost a median of 7 percent in value over the median of 5 years that the old mortgage had been in place. As Freddie Mac's House Price Index shows about a 25 percent decline in its U.S. series between September 2006 and September 2001, appraisals that these homes had either held their value better than the average home or had benefitted from value-enhancing improvements

7 ways to hear Not right now

With mortgage rates so low, just about everyone and their mother has at least inquired about refinancing.
Unfortunately, a lot of current homeowners are finding that they don’t qualify for one reason or another.
That said, let’s explore some common reasons why you may be denied that precious refinance. And don’t fret, I’ll also offer solutions.
Lack of Equity/ LTV Restraints
Perhaps the most common reason for denial nowadays is a lack home equity, which translates to a loan-to-value ratio well above what’s acceptable.
For example, a great number of homeowners took out interest-only home loans and option-arms during the housing boom because home prices were only going in one direction. Up.
But once things took a turn for the worse, many of those homeowners had little, no, or even negative equity as a result.
Even those who opted for traditional fixed-rate mortgages may have sapped their home equity by cash-out refinancing repeatedly. Regardless, many of these homeowners will find that they don’t qualify for a traditional refinance thanks to their inflated LTV.
Solution: There are a few government-backed programs, as well as lender-based programs out there at the moment that deal with high LTVs. The most popular is HARP, and soon HARP 2.0 will be released, which has no LTV ceiling. Inquire with your loan servicer or any other lender/broker for details.
Loan Amount Too Big
What if your loan amount falls into the jumbo realm, and you don’t have the special qualities, such as an excellent credit score and a low LTV to qualify? This could make it difficult to get that low rate, let alone a refinance to begin with.
Jumbo loans are a lot more restrictive and come with higher interest rates than their conforming loan brethren. So expect more scrutiny if your loan amount is bigger than most.
Solution: Make it a cash-in refinance by bringing money in at closing to get the loan amount down below the conforming limit. This could also lower your LTV and land you with a lower interest rate! Just make sure you actually want to stay in the house for the long-haul.
Credit Score Too Low
Another common refinance roadblock is a less-than-perfect credit score. And by less-than-perfect, I mean crappy. If your credit score isn’t where it should be, there’s a good chance you won’t get approved for your refinance.
Credit scores below 620 are typically considered “subprime,” and will make qualification difficult, especially at high LTVs. Basically the combination of a low credit score and high LTV is a huge risk for a mortgage lender to take, especially in today’s market.
Solution: There are still options for those with low credit scores, such as FHA loans. You just need to shop around more to find them or enlist a mortgage broker to do the legwork for you. Either way, understand that the mortgage rate you see advertised on TV won’t be the one you receive. So you may want to work on ways to actually improve your credit score before you apply.
Insufficient Income
Another refinance killer is insufficient income. If your income isn’t as high as you said it was when you first got your mortgage during the boom (stated income loan), you may be in for a surprise this time around.
And supplying your actual income to the mortgage underwriter could be a rude awakening, even with the low mortgage rates on offer. If you aren’t able to squeeze below the maximum debt-to-income ratio limit, you’ll be denied.
Solution: While making more money is likely out of the question, adding a co-borrower could help you qualify. Or paying off existing debt. You can also shop around to find a lender with more forgiving limits.
Spotty Job History
This is a biggie, considering how bad the unemployment picture has become in recent years.
If you can’t prove that you’ve been steadily employed, typically for the past two years in a row, the underwriter may deny your refinance application, even if you make plenty and have loads of assets in the bank.
Solution: If you lost your job and resumed working, an underwriter may consider your application if you can document that your income is stable, predictable, and likely to continue. You can also consider a co-borrower for help qualifying.
Absence of Assets
Another toughie is asset documentation, especially with that nagging unemployment situation mentioned above.
If you don’t have sufficient, seasoned asset reserves to show the underwriter you’ll actually be able to make your monthly mortgage payments, you may be denied that refinance.
So it’s very important to put money away early and often into a verifiable account. Your mattress isn’t verifiable…checking and savings accounts, stocks, bonds, retirement accounts, etc. are.
Solution: Even if you don’t have the necessary assets, asking a friend or family member for a short-term loan could work. Just move the money into your own account several months before applying for the refinance to avoid getting the third degree from your lender.
You Listed Your Home
If you happened to list your home for sale, then quickly realized no one was interested, you may now be pondering a refinance. Unfortunately, your prospective lender probably won’t be too thrilled about it, considering the fact that you may sell again if given the chance and prepay your new loan. You may also run into problems when it comes time to appraise the property if it wasn’t selling at your asking price.
Solution: Call around and see which bank or lender doesn’t mind that the home is/was listed. Then remove the listing before you apply to ensure there aren’t any complications. And be prepared to write a letter or explanation regarding the “change of heart.”
In closing, these are just a few of the many, many ways you may be denied a refinance. This isn’t 2006. It’s 2011. And times have changed considerably.
Believe it or not, you actually need to qualify for mortgages these days. So do your homework and tie up any loose ends early on to avoid problems during the loan process.