Looking to Refinance? May Be Tougher, Now; Those with Adjustable-Rate Mortgages May Have Trouble Switching to a Fixed Rate

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Byline: DAVID BAUERLEIN

Some homeowners who counted on refinancing their mortgages at more affordable rates will find the door closing quickly on that option as lenders clamp down on making high-risk loans, according to Northeast Florida officials in the home financing field.

The shake-up will hit homeowners who have subprime loans, which carry higher interest rates than regular loans, said Jacksonville mortgage broker Patrice Yamato, president of the Florida Association of Mortgage Brokers. She said homeowners who signed up for subprime loans with adjustable rates will be hard-pressed to lock in a fixed rate by refinancing.

She said her "biggest fear" is that homeowners unable to refinance will face foreclosure because they no longer can afford their mortgages.

Subprime loans paved the way to home ownership for buyers unable to get financing at regular interest rates, particularly when the price of homes was escalating in a booming real estate market. But as homeowners have defaulted on those loans, lenders have taken a financial blow.

"There's a pullback," Yamato said. "[Lenders] are tightening up all the underwriting guidelines and really going to a very conservative approach."

MISSED PAYMENT RATIO HIGHER

A report released last week by the Mortgage Bankers Association said the rate of missed payments for mortgage loans was about 5 percent at the end of 2006. But for subprime loans, the delinquency rate was 13.3 percent. When the association looked only at prime loans - which make up the biggest share of the market - the rate of overdue payments was 2.4 percent. The report analyzed 43.5 million loans for homes and other residential properties up to four units in size.

Bill Thompson of Family Foundation, a Jacksonville nonprofit organization that offers financial counseling, said in recent years, he has worked with a growing number of clients who signed on the dotted line for subprime loans they could not realistically repay. The subprime market historically has a higher default rate because borrowers have spotty credit histories, and Thompson said the review by lenders kept getting more lax.

Helping people to become homeowners "is great, but are we really doing a service for them or an injustice to them because we're setting them up for failure sometimes," Thompson said. …