Loan Refinance Changes

Refinancing Adjustable-Rate Loans Becomes Harder for Borrowers

By Ruth Simon
From The Wall Street Journal Online

With rates on many homeowners' adjustable-rate mortgages rising, some who would like to refinance into a new loan are finding they can't.

In some cases, that is because their loan carries a prepayment penalty, which would force them to come up with thousands of dollars if they refinance in the first few years. Such penalties are common with so-called option adjustable-rate mortgages, which typically carry a low teaser rate that rises sharply after an introductory period.

Other borrowers are getting caught short by a changing housing market -- one in which home prices have flattened and lenders are beginning to tighten their standards after a long period of making mortgages easier and easier to get. The challenges are greatest for homeowners whose credit has declined since they took out their last loan and for those who have little if any equity. Some of these borrowers are still able to refinance but are finding it more costly than they expected.

These new challenges come at a time when many borrowers who took out adjustable-rate mortgages are facing higher payments. There are about $1.1 trillion to $1.5 trillion in ARMs that will face rate increases this year, according to the Mortgage Bankers Association. The MBA expects borrowers to refinance as much as $700 billion of those mortgages.
"The decrease in property values, combined with prepayment penalties, is making it very challenging for people to get out of these loans," says Ed Shanks, an executive vice president with U.S. Bank Home Mortgage, a unit of U.S. Bancorp. U.S. Bank is seeing more loans fall through, particularly in markets such as Arizona, California, Colorado and Ohio, where home values have softened. It could be "the tip of the iceberg," Mr. Shanks says.

In recent years, many homeowners refinanced repeatedly -- to get a better rate, lower their payment, consolidate debt or pull out cash. Even now, mortgage rates remain relatively attractive, though they have moved up from their recent lows in early December, and most borrowers still should be able to take advantage of them. The challenges for homeowners could increase if lenders continue to tighten standards and the housing market remains soft.
Antonio Papa, a construction worker, took out an option ARM with a 1% introductory rate in 2005 on a second home he owns in Jupiter, Fla. The rate jumped to 5.6% in September 2005 and has since climbed to 7.5%. "I was looking to refinance to have more stability," he says. He has decided to hold off because his option ARM carries a prepayment penalty that would force him to pay six months' of interest if he refinances within the first three years. Mortgage brokers often receive higher payouts for putting borrowers into a loan with a prepayment penalty, says Sandra Barrett, a loan officer in Palm Beach Gardens, Fla., who was working with Mr. Papa.Prepayment penalties are most common with option ARMs and loans made to borrowers with scuffed credit. Some 84% of option ARM loans made last year carried a prepayment penalty, according to an analysis by UBS AG that looked at mortgages that were packaged into securities and sold to investors.

The challenges facing borrowers are becoming more apparent at a time when opportunities for refinancing are narrowing. Rates on 30-year fixed-rate mortgages dropped to their lowest levels in 14 months in December, but have recently drifted higher. Rates on 30-year fixed-rate loans currently average 6.45%, according to HSH Associates in Pompton Plains, N.J., up from 6.16% in early December.

"The best deals in going from an ARM to a fixed-rate are passing," says Doug Duncan, chief economist at the Mortgage Bankers Association. "If anything, rates are likely to move up rather than down."

Meanwhile, there are signs that some lenders are beginning to tighten their standards. The shift comes after a long period of liberal lending practices that made it easy for borrowers to finance 100% of a home's value or get a mortgage without documenting their income and assets.
In a survey released Monday by the Federal Reserve Board, roughly 15% of domestic banks reported that they had tightened credit standards on residential mortgage loans in the past three months, the highest share since the early 1990s.

This month, Wells Fargo & Co. will begin reducing by 5% the maximum amount it will lend to certain riskier borrowers in "declining" markets. Those markets, covering more than 150 counties in two dozen states, include parts of California, Florida, Michigan and Ohio.

The change "reflects the tighter requirements of our investors," a Wells spokesman says. "I think all lenders are experiencing this kind of tightening of credit standards." Investors who buy mortgage-backed securities have been growing more concerned about credit quality as defaults have increased.

CitiMortgage, a unit of Citigroup Inc., last month began requiring that borrowers who take out a "stated-income" loan sign an affidavit attesting to the fact that information about their income in the application is accurate and hasn't been modified by their mortgage broker or loan officer. The change is designed "to protect the borrower as well as the lender," because borrowers may have trouble repaying the loan if their income is overstated, a company spokesman says.
On Jan. 30, Fannie Mae, the government-sponsored mortgage finance company, tightened its standards for so-called interest-only loans, which let borrowers pay interest and no principal in the loan's early years.

Other homeowners are being flummoxed by lower appraisals. Those most likely to be affected bought a home or refinanced in the past year or two and have little, if any, equity. "The block to refinancing is mainly located in those areas of the U.S. where there is little or no appreciation," says Peter Lansing, a mortgage banker in Denver.

Michelle Thompson, a medical-claims associate in North Glenn, Colo., pulled out $30,000 when she refinanced her mortgage last year, boosting her loan to $183,000. She would like to refinance again in order to lower her monthly payment, but when she went to apply for a new loan, she discovered that her mortgage debt exceeded the home's value.
Some borrowers are trying novel strategies. Charlotte Keyes, a program/project manager in Shawnee, Kan., refinanced her mortgage two years ago, pulling out $32,000 to consolidate her debt. With the rate on her loan set to rise to roughly 10%, Ms. Keyes is looking to refinance. Because she owes more than the home is worth, she plans on taking out a $13,000 auto loan and using the funds to pay down her mortgage.
With ARMs, "the tag line you always hear...is you can refinance with no problem," says A.W. Pickel, a mortgage banker with LeaderOne Financial Corp. in Overland Park, Kan., who is working with Ms. Keyes. "But it is a problem." The appraisal for Ms. Keyes's last loan was inflated, he adds.

Mitch Ohlbaum, a mortgage broker in Los Angeles, says some of his customers have had to tap the equity on their primary homes in order to pay down a portion of the debt on an investment property and be approved for a refinancing. Other borrowers have had to take a mortgage with a higher interest rate because their high debt load makes them a less attractive borrower.
Some borrowers facing prepayment penalties are sitting on the sidelines for now. David Lorentz, a high-school teacher in San Francisco, recently tried to refinance the option ARM on a four-unit apartment building he owns as an investment. He wanted to pull out cash to pay for renovations and college tuition for his children, but found he would have to pay an $18,000 prepayment penalty. "I guess I didn't get a good loan," says Mr. Lorentz, who plans to refinance in August when the penalty period expires.

Canine Clout Tribune Article

Here is an article printed in the Chicago Tribune Sunday Real Estate Section written by Chuck Green quoting none other than...

CANINE CLOUT

Would-be buyers may love a house, but when it comes to a decision, dogs rule

By Chuck Green

Special to the Tribune

Published February 4, 2007

Kelly and Matt Elvin with Sammy (from left), Mandy and Boomer. The Elvins relocated to Oak Park partly so their golden retriever would have a yard. They have since added two Labradors. Now they have a farm in Michigan, where the dogs can really romp.When Kelly and Matt Elvin shop for a couch, the question isn't whether it blends with the rest of their furniture or floor plan. Foremost in their minds is whether it's right for their dogs. "We're the kind of people who literally pick out a couch based on whether there's enough room for people and dogs," Kelly Elvin said.So it's only natural that while they loved living in the city, the Elvins moved to Oak Park several years ago, partly so their golden retriever would have a yard. "We wanted him to be able to play and exercise, in addition to his daily walk," said Kelly. In fact, the Elvins, both formerly lawyers, have since added two Labradors. "That would have been a tight fit in our apartment."When it comes to relocating and altering lifestyles to accommodate one or more dogs, the Elvins have plenty of company. According to the American Pet Products Manufacturers Association 2005-06 National Pet Owners Survey, 43.5 million U.S. households own a dog, and nearly 73 million dogs are owned in the country.

"Dogs are a part of the family almost as much as any other member. They're part of the home buying decision-making process," said Jim Gramata, a broker associate with Keller Williams Lincoln Park Realty. "Whether I'm listing a property and presenting it to prospective buyers, or out with clients, I understand the importance of the family pet and how homes can be passed on due to their requirements."In fact, he said, a woman who recently attended one of his open houses had to pass on a unit she liked because it wouldn't be right for her pet, who was with her."I told her to bring him in if she wanted because he should come check it out too. The only unit available was on the top floor, which she loved but couldn't even consider because her dog was getting old and would have had trouble handling the stairs because of bad hips," Gramata said. "She said that had happened to her several times already in her search and that she was really limited in her choices due to her dog's age, but was determined to `find them both a good home.'"

That determination resonates with Jamie Damato, who said when she searches for a place to live, her dogs have "about a 98 percent vote. Name a choice, they have a say." Even if their choices don't necessarily coincide with hers, noted Damato, who has lived in a single-family house in Logan Square since 2005."The neighborhood became less my choice but the choice of my budget. Unfortunately, you don't get a nice house with a yard and good-size, dog-friendly home for a reasonable price in Lincoln Park or Lakeview."My ideal neighborhood would be anywhere along the lake--preferably a loft space with big windows and a deck," noted Damato, who along with Kelly Elvin is affiliated with Damato's Animal Sense Canine Training and Behavior Inc. in Chicago. However, that arrangement would be less than ideal for her dogs, a beagle mix, Doberman mix and toy poodle mix. "They need to be happy and have their needs met."Her home, more than 2,500 square feet, includes a fenced-in back yard, "with lots of space in the house for playing."Damato said she's moved more than 10 times since she got her first dog more than 14 years ago. "It's been a non-stop search for the perfect dog-friendly space. And since I'm such a huge dog fanatic, I always have at least two or three at any given time, whether they are mine [or whether she's pet-sitting or caring for a foster dog]. Landlords aren't so groovy about that sort of thing."Before purchasing her home, Damato lived in Uptown. "It was a decent dog set-up, situated on a park, but still didn't have a yard or a true dog-loving landlord. So I had to become my own dog-loving landlord. It was just getting old having other people make the rules for my pets."Ideally, she said, "I wouldn't own at this point in my life, but moving as often as I did was not ideal, either. Besides, I hated that my living situation impacted my choices about fostering animals or just having a bunch of dog friends over to hang out."When the Elvins took trips to her in-law's farm in Pennsylvania, they noticed how much their dogs liked romping freely about. So about a year and a half ago, they bought a farm in Grand Junction, in southwestern Michigan between South Haven and Kalamazoo. "We started looking for a place where we could go on weekends and have more property so our dogs could do what they do, and safely," said Kelly Elvin of the nearly 10-acre property."They'd always go with us to the farm in Pennsylvania and loved running off-leash, going into the woods and sniffing for rabbits. Seeing how much they liked it, we wanted them to have that experience more than once a year," Kelly said. "It's wonderful because the dogs can play off-leash. In Oak Park, you don't really have access to the kind of yard dogs can run in. There's only so much excitement you can find in a yard."Unfortunately for Lisa and Alex Collins, when it came to their dog, a Rotweiler, and their neighbors in a Lakeview building, they had excitement they could do without, which prompted their move last May to a home with a yard on the Northwest Side."A couple of people had a problem having the dog in the building, which made things difficult for us." Otherwise, they would have remained longer. "It was a one-bedroom, and the first place I ever owned. It was small, but we didn't need much more space. The neighbors were a huge deterrent, so we didn't like living there any longer."At that point, the couple found a four-unit condominium--"a decent place, but it had other issues," said Lisa. "But we had a child, and with a dog we wanted to get into a single-family home and have a yard and move a little farther out."She remembers one place they liked in particular that had spiral staircases they felt would have been tough for their dog to negotiate. "It's difficult for a dog to get down, and two, I didn't want to be carrying a dog up and down a spiral staircase once he got older and had arthritic issues or anything, so there were places prior to this that were excluded because of an issue like that."Damato said her dogs have no issues with her current living arrangement. "Now that I have this house, I can have a zillion dogs in and out and come and go and the only one who has veto power is my poodle."

The Future of Home Designs

What sort of lessons can a so-called "concept" house teach us?

At the International Builders Show, the country's largest trade event for the housing industry, it's hard to tell -- at least when it comes to the two major concept houses debuting at the Orlando, Fla., event.

Co-sponsored by Builder magazine and the National Council of the Housing Industry/Supplier 100, a building products manufacturing group, the two houses sit side-by-side in downtown Orlando and showcase what's trendy in both new and remodeled homes. The sponsors and the local builders who produced them say that the houses are meant to be showcases of new products and building techniques. Visiting builders are encouraged to try building these homes in their own markets.

Both of these houses are so fantastical, and their stories so idiosyncratic, that it's hard to know what lessons can be taken away. In fact, after touring them, I was left with more questions than answers.

Take, for instance, their price tags. The Renewed American Home -- a remodel of a 1909 bungalow -- is currently on the market for $2.9 million, while the New American Home is for sale at $3.15

The remodel of the 1909 bungalow -- on the market for $2.9 million.million. Both houses were constructed with hundreds of thousands of dollars of donated materials, fixtures and appliances, so their prices don't reflect their true market value. How is a builder supposed to figure out how to reproduce a look if he doesn't know what it costs?
Then there's the question of questionable design. The New American Home, a blend of Craftsman and urban-chic styling, is glitzy, with metallic glass tiles, walls that slide on tracks, and steel-cable stair railings. But the floor plan is puzzling: The living room and dining room are on the third floor, the master suite is on the second, and the two secondary bedrooms, office, home theater, wet bar and laundry are on the first (thank goodness there's an elevator). Why is this inverted plan better than a more traditional one? Would anyone want to drag groceries up three floors to the kitchen or have an office next to a theater? And who really wants to take a shower in a glass-walled room overlooking an open balcony, directly facing the windows of the building across the street?

And finally, there's the question of originality -- or lack thereof. The 1909 bungalow was moved to a lot two doors down from its original spot to make room for the New American Home. The bungalow's space was expanded from 2,460 to 5,439 square feet, and its interior was gutted to make room for a wider staircase, wheelchair-accessible bath, new staircase and other features. Older materials were replaced with new: engineered wood for the floors, solid surfacing for the countertops, laminate for the cabinetry. Can such a thoroughly revised house really be called "renewed?" And if it was in such bad shape to begin with, and not worth preserving for its historical or architectural significance, why not just tear it down and start afresh?
Questions, questions: And I always thought the point of show houses was to provide answers.

-- June Fletcher is a staff reporter at The Wall Street Journal and the author of "House Poor" (Harper Collins, 2005).

Rates Up a Bit Last Night

30-year fixed rate at 5.8%; 10-year Treasury yield at 4.78%

Monday, February 12, 2007 Inman News

Long-term mortgage interest rates moved higher Friday, and the benchmark 10-year Treasury bond yield climbed to 4.78 percent.
The 30-year fixed-rate average rose to 5.8 percent, and the 15-year fixed rate inched up to 5.58 percent. The 1-year adjustable held at 5.38 percent.
The 30-year Treasury bond yield increased to 4.86 percent.
Rates are current as of 7:15 p.m. Eastern Standard Time.
Mortgage rate figures are according to Bankrate.com, which publishes nightly averages based on its survey of 4,000 banks in 50 states. Points on these mortgages range from zero to 3.5.
In other economic news, the Dow Jones Industrial Average lost 56.8 points, or 0.45 percent, finishing at 12,580.83. The Nasdaq was down 28.85 points, or 1.16 percent, closing at 2,459.82.
Stock and bond figures are current as of 7:30 p.m. Eastern Standard Time.

Consumer Economic Confidence in Chicagoland Improves Significantly

Chicagoland Chamber Survey Reports Economic Confidence Higher in Chicagoland Than Nation

The economic confidence of consumers in Chicagoland rose significantly during the fourth quarter of 2006, according to the Rasmussen Consumer Index for the region released today by the Chicagoland Chamber of Commerce. The quarterly reading stood at 121.2 at the end of December, a more than 12-point gain from 109.1 reported at the end of September. And, for the first time, Chicagoland residents were more optimistic about the economy than consumers nationally. The national Rasmussen Consumer Index for the same period is 117.7

Here is the full story