Florida Mortgage Refinancing to Get a Lot Tougher

Homeowners who counted on Florida home loan refinancing at affordable rates might find the door closing fast on that option as lenders clamp down on making high-risk loans, Northeast Florida officials in the home financing field say.

According to the Florida Times-Union, the shake-up will hit homeowners who have subprime loans, which carry higher Florida mortgage rates than regular loans.

Florida mortgage broker Patrice Yamato, president of the Florida Association of Mortgage Brokers, says that homeowners who signed up for subprime (bad credit) loans with adjustable rates may 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.

Bad credit home loans paved the way to home ownership for buyers unable to get financing at regular Florida mortgage rates, particularly when prices were escalating in a booming real estate market.

But as homeowners have defaulted on those loans, many Florida mortgage lenders have taken a financial blow.

“There’s a pullback,” Yamato said. “[Mortgage lenders] are tightening up all the underwriting guidelines and really going to a very conservative approach.”

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 the prime rate loans - which make up the biggest share of the market - the rate of overdue home loan payments was 2.4 percent. The report analyzed 43.5 million home loans for homes, along with 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 Florida home loans they could not realistically repay.

The subprime market historically has a higher default rate because of the fact that borrowers have spotty credit histories, and Thompson said the review by mortgage 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.

He said he counseled a client last week who had received pre-approval for a loan that would have cost her around $1,100 a month for the combined cost of repaying the loan, mortgage insurance, property taxes and insurance.

He said the client’s take-home pay was $1,400 a month. After going over the numbers with her, she agreed to postpone house-hunting and focus instead on improving her credit rating.

Homeowners who have a home loan with a company that’s experiencing myriad financial difficulties should not worry their loan is at risk or that its terms will change, said Tom Morcom, president of Coastline Home Mortgage, which is a Coastline Federal Credit Union company in Jacksonville.

He said the homeowner has a legally binding contract.

Like Yamato, he said he doesn’t expect that the recent problems in the subprime lending industry will spill over to the rest of the market and make it harder to qualify for regular loans.

However, he said in the subprime market, loans will be scarcer. He said he doesn’t expect approval of loans for the full value of the house, or home loans in which the borrower simply states his income without providing proof he can pay off debt.

SOURCE: Florida Times-Union