Refinancing in a tough lending economy

March 10, 2010 3:20:07 PM PST
More and more people are falling behind on their mortgage payments. The Mortgage Bankers Association says 15 percent of families with loans are making late payments, and that is an all-time record. Right now in the Tri-State area, those behind 90 days on their payments include about 5 percent of homeowners in New York and New Jersey and about 4 percent in Connecticut.

Refinancing is one way to get your payments back on track. The rates are certainly very attractive - fixed rate 30-year loans are hovering around 5 percent, give or take.

But, whether you're refinancing your mortgage or looking for a new one, it's a different game today than it was just a few years ago. Getting bank loans is anything but a slam dunk.

When Tracy and David Chapman first bought their two-bedroom co-op in Park Slope, it was three years ago and the banks were practically throwing money their way.

What a difference three years have made. Because of big changes in the economy and the credit market, it took the Chapmans a whole year just to re-finance their loan. And their credit is perfect, they both have excellent jobs and their new mortgage was with the very same bank they used before.

"And we sort of put our foot down with our mortgage broker and said, 'Wait a minute here, why isn't anybody listening?'" Tracy said.

"And then it became kind of scary," David said. "When you realize, that, well, that nobody in this neighborhood can buy or sell."

It is a big problem in the neighborhoods of Brooklyn, where so many of these buildings are three- and four-unit co-ops. The banks are extremely worried that because the buildings have fewer units, they could present a higher risk.

Norman Calvo was the Chapman's mortgage broker, and he says their case is certainly not unusual. But at least, he says, it is a success story during these incredibly tight times. So how tight is lending, on a scale of 1 to 10?

"I've been doing this for 28 years, and this is probably a 9," Calvo said. "It is so difficult, it's beyond difficult."

Several factors are at play. First of all, many lenders have gone out of business. Secondly, banks are running scared that they'll have to buy back the loans bought by investors.

From a buyer's standpoint, here's what else you can expect. Your credit score needs to be more solid than ever. You need a down payment whereas before, you did not. And your debt load has to be much smaller.

"Used to be able to walk into a bank and, in some cases, if you could breathe on an application, you could actually get yourself a mortgage loan," mortgage analyst Keith Gumbinger said. "Not the case anymore."

But they say the news isn't all gloom and doom. The Chapmans say whatever you do, shop around and don't give up.

"I feel like every month, we called and said, what's going on?" Tracy said. "What can we do now? What can we do now?"