Steamboat Springs Steamboat Springs mortgage lenders say their business is picking up in line with a national trend that has seen mortgage refinancing applications come in faster than they have since May 2009. But that doesn’t mean there aren’t challenges.
“Our business has gone through the roof. There’s a lot more work involved,” said David High, of Steamboat’s branch of Alpine Bank. “But I’m not complaining.”
Several news agencies reported Thursday that the Mortgage Bankers Association released a report revealing national demand for refinances jumped more than 17 percent during the week ending Aug. 13, primarily because the average rate for a 30-year mortgage is near a historic low at 4.5 percent. That means homeowners who closed on a previous mortgage as recently as 2008 are paying as much as 2 percent more than the going rate, creating lots of room for many to justify paying fees to trade down into a lower monthly payment.
Local mortgage lenders said the challenge in today’s market is presented by declining real estate values and eroding paychecks that push loan-to-value ratios beyond acceptable parameters. And loan underwriters, who agree to buy mortgages initiated by local banks, are becoming pickier.
Customers often come to him, High said, with a second mortgage attributable to a line of credit they want to subordinate to their first mortgage. Say the line of credit is good for as much as $50,000. When an underwriter scrutinizes a mortgage application, even if the applicant hasn’t tapped into a single dollar of the $50,000, he’ll assume a $500 monthly payment is going out, High said.
However, Kathryn Pedersen, of Yampa Valley Bank, said Routt County homeowners shouldn’t assume that the value of their homes have declined too much for them to qualify for to refinance.
“There are some people who purchased their home in 2007 (at the peak of the market) with 80 to 90 percent loan-to-value ratios who won’t have enough equity to refinance,” Pedersen said. “But there are a lot of people who think they can’t (qualify), who can.”
The fortunate homeowners are those whose loans were purchased by federal government-sponsored Fannie Mae and Freddie Mac. Fannie Mae, in particular, has some special programs designed to help borrowers in good standing refinance, mortgage lenders here agree.
“If your loan is owned by Fannie or Freddie, in some cases we can go up to 125 percent of value,” High said.
In other words, a homeowner might have seen the appraised value of their home decline by more than 25 percent — and their equity along with it — and still have hope of jumping into a lower cost loan.
Pedersen confirmed that refinancing at today’s rates compared to a presumed 30-year mortgage rate of 6.5 percent on a 2008 purchase can translate into a $250 savings on a $200,000 mortgage — dropping the payment from about $1,265 a month to about $1,015.
Josh Kagan, of Yampa Valley Mortgage, said his business also is up because of refinancing applications along with a sprinkling of new home purchases motivated by the low 30-year rates. However, when he counsels customers interested in refinancing, he urges them to go into a shorter-term loan — if not a 15-year mortgage, then a 25-year mortgage.
“A lot of people don’t understand that the biggest cost of refinancing is converting from a 30-year mortgage to a new 30-year mortgage,” Kagan said.
Consumers who do that are foregoing the interest they paid on the first years of their previous mortgage, he said. It’s especially true for homeowners whose mortgage is two to five years old and whose payments have consisted almost entirely of interest and very little principle.
Pedersen has found that relatively few consumers have been motivated by historically low interest rates to purchase a new home.
“The rate is less a factor than a low purchase price,” Pedersen said. “A rate drop of one-eighth, one-quarter or a half a point doesn’t make people jump off and buy a house. What they’re not realizing is that that $250 savings (per month on a $200,000 mortgage based on the difference between an interest rate of 6.5 in 2008 and 4.5 percent today) translates into $46,000 more house. That’s a huge number.”
High said many of his customers don’t realize how much real estate values here have declined in the past three years. He said he came across one home that had sold for a little more than $1.2 million in 2008 and recently appraised for $670,000.
“The same house sold for $640,000 in 2002, so that’s basically where we are,” High said.
Depending upon the price point, homes here have been losing value at a rate of more than 1 percent a month, he said. And complicating the lending process is that appraisers now are required to look at listing prices to put together their comparables for underwriters.
Short sales and foreclosures are having more of an effect on housing values in Routt County as a result, he said.
So while the number of refinancing applications is up dramatically this month, High said the arduous qualification process is taking him back a few decades.
“It reminds me of the ’70s, when people were so happy if they qualified for a mortgage that they threw a party,” he said.