Many things have changed in the world of mortgage finance. Rules and regulations have been added, finance guidelines have been revised and qualification requirements have become more restrictive over recent years.
But there is something else going on that many people—buyers, sellers, real estate agents and attorneys—are not aware of, namely the industry is now paying attention to the rules. We all know how the loosening of standards and easy access to mortgage products impacted our mortgage environment and the economy at large. The fact is that in the world of conventional mortgage financing many of the rules remain the same today as they were in the early part of this century.
The only difference today is that the underwriters, credit review departments, appraisal review departments, and condo review departments are paying better attention. We are in an environment now where every single document in a loan file is reviewed with a magnifying glass. This is a huge change from the past when most documents were only given a cursory review.
What does this mean for the individual wishing to refinance? There is nothing more frustrating for a client today than to learn that they cannot refinance for some reason. Perhaps the condo does not qualify or there is an issue with the property or income that they were previously not made aware of.
The fact is that the issue may have been there three, five or eight years ago when this buyer purchased the property originally but at that time no one was paying attention. The condo may have never met requirements but no one was looking at the condo docs thoroughly.
This mortgage environment is leaving a lot of borrowers out in the cold. Not just those whose values have dropped or have met financial hardship of some type, but for those whose situation is the same as it was when they previously qualified and who are now being told "Too bad, you were good enough before but you don't make the cut today."
That is a hard one to reconcile when the government is working so hard to help people refinance through various programs.
I think that the regulators need to look at legacy loans and provide a different set of guidelines. If the borrower qualified at 6% and is making the payments today, is there risk that they won't make their payments on time at 3.5%?
The refinance programs created by Fannie and Freddie have a narrow range for qualification. Yet there are many borrowers who fall out of that range for various reasons who deserve to refinance today: Perhaps their condo does not meet guidelines (didn't when they purchased but no one noticed); perhaps their ratios are too high today (but they were approved years ago with the same income profile); or perhaps there is another issue impacting their ability to take advantage of today's low rate environment.
I am not talking about underwater borrowers with little or no equity (although I believe that a true streamline refinance program would benefit many and serve our economy). I am talking about people who cannot take advantage of the HARP programs and do not have any refinance options today because the rules have either changed or are now being enforced when they were not at the time of purchase. How about an amnesty program for those legacy loans? If qualifying ratios are the same or improved as they were at the last loan and payment history is perfect, allow a refinance. If the condo profile is the same today as it was with the last mortgage, allow a refinance.
Today there are many people who cannot get financing. Not because anything has changed in their profile or that the rules are different but simply because a rule was overlooked years ago. There needs to be a way to address this inequity in the system now that everyone is finally paying attention!