- The Washington Times - Friday, January 16, 2009

Thanks to a continuing period of low mortgage rates, a steady stream of homeowners is flooding my office with telephone and e-mail inquiries about refinancing. A few weeks ago, I wrote a piece warning that this apparent refinance wave may not be the tsunami analysts are predicting.

Property values in many areas have dropped, making a lot of homeowners with insufficient equity ineligible for a refinance. Likewise, the industry’s new “risk-based pricing” policy has tightened the credit and equity guidelines, shrinking the pool of homeowners who are eligible for the most competitive terms.

During the last few weeks, I’ve noticed some other changes. Even if you have perfect credit, huge equity, great income and job stability, you may have to jump through some hoops if you want to refinance. Consider the following example.

I have two very good friends whom I have known for 15 years. They are married and both have job stability. I have helped them with numerous mortgages (purchases and refinances). When rates dropped, I received an e-mail from one of my friends inquiring whether it makes sense for them to refinance.

Sure enough, I look at their situation and it turns out I can refinance their Bethesda home from a current rate of 5.875 percent to 5.25 percent with no points or closing costs. The loan balance is $350,000. The property appraises for $700,000. Both of these folks have credit scores near 800, which is as near perfect as anyone can get, and both of these applicants are high-ranking career officers in the U.S. military. They have more than enough income to support the requested loan and more than $500,000 in cash and retirement accounts.

So, what’s wrong with this picture? Nothing. It seems to me that this is a mortgage investor’s dream loan - an easy approval.

Wrong. One of the largest banks in the United States, which I will not name, suspended the loan. A “suspended” loan means it has been neither approved nor declined. It seems the underwriter needs a letter from the military that can verify that these folks will continue to be in the military for at least 12 more months.

Come again?

Folks, the world has gone crazy. This is the same lender that, five years ago, offered excellent rates to people with a very marginal credit score of 620 with a stated-income loan upon request. The easy mortgage money days are — thankfully — over.

However, let’s not swing the pendulum to the extreme on the other side. Common sense must prevail. I hope the moronic underwriter who suspended my friends’ loan reads this column.

The story has a happy ending. I simply withdrew my applicants’ loan and gave it to another, more reasonable investor. My clients were not affected.

In the meantime, let’s not fool ourselves. The credit crunch is still alive and well. Some of the big banks are pretending otherwise.

Henry Savage is president of PMC Mortgage in Alexandria. He can be reached at [email protected]

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