Interest rates have surprised the world once again, folks. The 10-year Treasury bond yield, which moves with long-term interest rates, fell to 2.94 percent on June 8.
(I’m heading out of town for a vacation and am filing my column early. By the time this is published, rates could be lower - or higher. It’s a bad time to go on vacation!)
The drop in rates obviously has increased refinancing activity as homeowners jump to cash in on lower interest rates. The tighter lending standards, however, coupled with lower property values, has decreased the number of candidates eligible to refinance.
Homeowners around the country are feeling the loss of wealth caused by their biggest asset dropping in value by 30 percent or more in some regions. Many folks become extraordinarily emotional when their appraisal comes in lower than they expected, but as long as the value meets the requirement for the refinance, it doesn’t matter.
We’re in a crazy post-mortgage-meltdown world with crazy, overreactionary subsequent regulation that is sure to be questioned in the future. I always have to remind my clients that as long as the value comes in high enough to do the deal, they shouldn’t worry about it.
To sum up the rules of the mortgage road today:
- Underwriting common sense doesn’t exist. A retired couple with $1 million in the bank, lots of home equity and perfect credit cannot refinance if they have no income stream on their tax returns.
- Mortgagors should expect a lot of paperwork. Be prepared to explain why you took four months away from your job to have that baby.
- If you thought your credit score was good at 700, which used to be considered great, be prepared to pay a bit more for a refinance because your score isn’t more than 740.
- Don’t expect your property to appraise at what you think it will. Unless you are very lucky, your home’s value has dropped.
- The new rules also have increased the probability of getting a substandard appraisal report. In many cases, appraisers are assigned by a management company, and the appraiser may be from an area very different from the subject property’s area, making him or her unfamiliar with the local market.
Next week, I will share the story of a perfectly good homeowner who got emotionally involved and made the wrong decision because his home’s appraised value didn’t meet his expectations.
Don’t fight reality, folks. Property values aren’t going up anytime soon. (And I rarely make predictions.) Let’s revisit it in five years.
Send email to henrysavage@pmcmortgage.com.
Please read our comment policy before commenting.