Mortgage Q&A: Refinance worth new headaches

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I’m continuing my series on the low level of mortgage rates this week.

The yield on the 10-year Treasury bill is 2.93 percent as of this writing. After poking around the Internet, it looks like that’s the lowest yield since 1965. Because mortgage rates follow the movement of Treasury bonds, it’s no surprise my telephone is ringing off the hook.

Despite the credit crunch - which has improved, but still persists - plenty of homeowners are eligible for a refinance and should take advantage of these great rates. It’s not as easy as it used to be. Here’s a random sampling of changes that are making the refinance process more difficult.

  • The Home Value Code of Conduct (HVCC) was implemented in May 2009. It basically prevents lenders from communicating with an appraiser. The rule is designed to keep lenders from influencing appraisers to “hit” a particular number.

While this may have been a minor problem, it certainly wasn’t a significant cause of the mortgage meltdown. Appraisers have to support their opinion of value through real comparables and value adjustments that are accepted in the industry.

Gone are the days when I could call an appraiser who could pull up some comparables and give me an idea of whether a particular value could be accurately and fairly supported. A borrower now must pay for an appraiser who may not know the area and unfairly valuate the property, killing the opportunity for a homeowner to lower his rate and waste the money he spent on the report.

  • IRS 4506 is a form that was used by certain lenders to help prevent mortgage fraud. It enables the lender to obtain an applicant’s tax return information directly from the IRS. Back in the day, these lenders would exercise this right randomly as a quality-control procedure, not unlike the frisking of random air travelers at the security checkpoint. Today, virtually all lenders pull their applicants’ returns, regardless, causing a longer processing time.
  • I have had complaints from some borrowers who object to an appraiser taking photographs of the interior of their homes. Most lenders require interior pictures - something unheard of a decade ago, and unnecessary in my opinion.
  • Lenders now want a telephone bill to verify identity. Apparently the required driver’s license, bank statements (which show the applicant’s name and address) and W-2s aren’t sufficient. Some lenders even ask for a utility bill.
  • The dreaded paper-trail requirement is giving homeowners heartburn. I’ll describe this in a recent example: A couple who earn more than $150,000 annually and are refinancing their $400,000 loan have been asked to document a $4,200 deposit shown on their bank statement. It turned out to be an insurance refund, and my clients had to jump through hoops to provide acceptable documentation. The logic behind the request was to prove that the source of the $4,200 wasn’t borrowed funds. Not that it would have mattered because these folks were more than qualified.

These are examples off the top of my head, and they show one thing: Common sense in lending still doesn’t exist.

Don’t, however, let this column scare you away from refinancing. Rates are unbelievable, and they won’t last.

Henry Savage is president of PMC Mortgage in Alexandria, Va. Send e-mail to henrysavage@pmcmortgage.com.

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