TheMReport — News and strategies for the evolving mortgage marketplace.
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FEATURE Renegotiating the American Dream The refinancing boom is generating changes in the industry, but the trend is also influencing the consumer perspective on homeownership, creating a new plot line for the American Dream. By Bob Calandra V ictor Ciardelli calls them serial refinancers, homeowners who refinance their homes two or three times a year to cash in on falling interest rates. nancing may be a bit excessive, but Ciardelli and others say that refinancing is saving homeown- ers thousands of dollars a year and may be, in an era of high unemployment, keeping millions of American in their homes. "Customers are saving hun- Such rabid devotion to refi- dreds of dollars a month, and there is no better way to help out the individual homeowner than to lower their monthly payment," says Ciardelli, founder of Guarantee Rate, an online mortgage company licensed in 46 states. "The affordability factor is lower today that it has ever been." Everyone knows that mortgage rates are at a historical low. But seeing the actual numbers and the progressively downward interest rate slide really drives it home. For instance, the 30-year rate in 2009 was hovering around 5.5 percent, according to the website Mortgage X – Mortgage Information Service. Today a dili- gent homeowner can get a 30-year mortgage at 3.6 percent. Someone looking to refinance to a 15-year mortgage will find astoundingly low rates, even when compared with just three years ago. A 15-year mortgage in 2009 was somewhere around 5 percent, give or take a point or two. Today you don't even have to shop around to find 15-year mortgages below 3 percent. With those rates, it's no won- der many lenders and brokers ing has helped, some mortgage professionals believe the boom should be benefitting a lot more. Some homeowners don't have enough equity in their homes to qualify for refinancing to take advantage of the low rates. And self-employed people who have a high credit score, savings in the bank, and equity in their homes are being locked out by the new, stringent underwriting rules that went into effect in the aftermath of the no-document mortgage era in the mid-2000s. "Unfortunately refinancing believe the people who have, and continue to, refinance their homes rank in the millions. It's impos- sible to tell what percentage of those millions refinanced to save their homes. But no one doubts that refinancing is playing a criti- cal role in keeping the American Dream of homeownership alive. Yet for all the people refinanc- doesn't go as far as it ought to go," says Jack M. Guttentag, professor emeritus at the Wharton School. "There are millions of people who should be able to refinance their high-rate mortgages and haven't been able to. The qualification requirements are markedly tighter than they were before the crisis and, in fact, they are excessively tight. " Recession and Refinancing R set. The first is always followed by the second. Guttentag says the pattern has repeated itself six or seven times since the 1960s. "In every recession, we have had the Fed reduce rates and there was a refinance boom," he says. But the current refinancing boom is different in several ways. In years past, homeowners used refinancing cautiously. The rule of thumb, says Gloria Shulman of Beverly Hills-based CenTek ecessions and refinancing go together like sunrise and sun- THE M REPORT | 33