- The Washington Times - Thursday, April 21, 2011

Q. In a recent column, you mentioned that the new legislation affecting mortgage loan officer compensation will prevent some borrowers from being able to obtain a mortgage because it’s “not worth it.” I think you’re right because I have been trying to refinance for months.

I have an adjustable-rate mortgage (ARM) at 5 percent, scheduled to change in 18 months. My balance is $210,000, and I’m seeking another ARM in the amount of $250,000. The property is appraised for $345,000.

I have very secure retirement income and excellent credit scores. My mortgage payment is $1,430 monthly, which is very comfortable. Although my income is secure, my debt-to-income ratio may be tight.

It seems the loan officer doesn’t want to put enough work into making my loan happen. I don’t know if this is a result of the new legislation or not. Any helpful thoughts are appreciated.

A. The new legislation became a reality just a couple of weeks ago, so I doubt your refinance trouble is a result of the new compensation rules.

My assertion that the new rules will prevent some folks from obtaining a loan because it’s “not worth it” refers to small loan amounts with capped compensation. Lenders must now pay brokers, and brokers must pay their loan originators a predetermined percentage of the loan amount.

If the predetermined percentage is 1 percent, and a difficult but “doable” loan application is for just $80,000, the broker can receive just $800. Under some circumstances, it may not be financially feasible to undertake the processing of an extensive application. I believe this will happen.

The loan amount and circumstances you describe are not what I would consider to be too small or too difficult. From the limited information I have, my guess is you either have an inadequate and inexperienced loan officer or your debt-to-income ratio is not marginal, but well over the level that’s acceptable.

If it’s the latter, this is something you should have been told by your loan officer. In fact, it sounds as if your loan application package would be easy to put together with good credit, equity and secure retirement income.

Here’s a general rule of thumb. Folks with good credit and equity sometimes can be approved for loans when the total debt-to-income ratio is as high as 49 percent. For a cash-out ARM refinance like what you want, the limit probably will be 45 percent.

A new ARM in the amount of $250,000 would result in a new mortgage payment of approximately $1,500. This would mean your verifiable income would need to fall in the range of $3,333 per month if you have no other outside debt.

I’m frankly confused as to why you haven’t received a clear answer. If there is, indeed, a debt-to-income problem, you might be able to solve it by taking out less cash with a smaller loan amount.

Either way, you deserve a quick and clear answer. Call a trusted relative or neighbor for a recommendation for another loan originator.

Send email to henrysavage@pmcmortgage.com.

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