Underwater Borrowers Can't Get Low Mortgage Rates

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Low mortgage rates elude 'underwater' homeownersWASHINGTON - Today's record-low mortgage rates are out of reach for millions of U.S. homeowners who would benefit from them most.

One in four homeowners with a mortgage - 11 million people - owe more than their home is worth. These "underwater" borrowers have virtually no shot at refinancing.

Their plight is a drag on the housing market and the broader economy.

The Obama administration is hoping at least 1 million of these borrowers will take advantage of its refinancing program under more lenient rules unveiled Monday. Homeowners who are current on their payments will be eligible to refinance no matter how much their home's value has dropped.

Still, it's unclear how many borrowers will benefit. Lenders will remain under no obligation to refinance a mortgage they hold.

A growing number of these people are missing mortgage payments and falling into foreclosure. And the higher rates they're locked into limit how much they can contribute to a weak economy. If they were able to refinance at today's rates, it could boost consumer spending by tens of billions of dollars, economists say.

Underwater homeowners are paying an average 30-year fixed mortgage rate of 5.7 percent, according to an analysis of mortgage data by CoreLogic and The Associated Press. That compares with today's average rate of 4.11 percent on a 30-year fixed mortgage. For a homeowner with a $250,000 mortgage, the lower rate would save more than $200 a month.

For many Americans, a few hundred dollars each month would mean the difference between paying their mortgage on time and in full and losing, or walking away from, their home.

Underwater borrowers are the "most desperate population in the country today," says Barry Bosworth, an economist at the Brookings Institution.

Dan and Maggie Micoff bought a two-bedroom home in the Detroit suburb of Marine City in 2003. They paid $119,000. Eight years later, they're underwater with a 6 percent loan.

If they could refinance, the Micoffs, both 58, could shave at least $120 from their monthly bill.

"The banks won't work with us," Maggie Micoff said. "We helped bail them out, and now we can't even get a personal loan to get by. We could rent something for a few hundred dollars cheaper."

Even among homeowners who do have equity in their homes, few are refinancing. Many have already refinanced within the past year. Others can't meet tighter lending standards. That's why underwater borrowers represent the best chance for refinancing to unleash spending that's otherwise going toward mortgage bills.

With millions locked into artificially high rates, foreclosures are rising. Mortgage default notices surged nationally last month.

Whether the administration's revamped mortgage refinancing program will reach more Americans this time is unclear, said Mark Vitner, senior U.S. economist at Wells Fargo.

"No one knows if it will spur a lot more people to refinance, but it's a start," Vitner said.

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17 Comments

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Barbara

If all these folks who are underwater default, we are in serious trouble. If tomorrow 11 million people walk from their homes, our econmic conditions would suddenly be worse. It is in this countries BEST interest to help these folks out. Even a novice can see the storm cloulds on the horizen building strenght. Most of these good folks are in economic trouble that is not their fault. Most lost their jobs/careers/lives when American companies outsourced or layed off people.
The real enemies of the American people today are not terrorist from abroad but from corporate leaders and political leaders right here in America. On September 11, 2001 terrorists CRASHED planes into buildings causing the deaths of thousands of Americans, every month companies still send jobs overseas CRASHING American livelihoods just in a different way.

October 25 2011 at 7:50 PM Report abuse +2 rate up rate down Reply
seattlewkr

But a real serious problem is those that paid, say, 400,000, and they're worth 200,000, and they need to sell and move for many reasons, job losses, relocation, retirements, etc., and they're stuck with the houses. You can all blame those folks, but of the 50 new homes in my area, Wells Fargo handed out HUGE, HUGE loans to low income people who defaulted, are outta there, and the homes are selling for prices now in the 180,000s.

October 25 2011 at 4:56 PM Report abuse +1 rate up rate down Reply
Lisa

If people feel we are asking for a windfall it is totally incorrect. Our situtaion starting alittle over 3 yrs ago. Husband lost his job. He took on a part time job and got injuried. He is now 60 and with his pension he is not able to work certain jobs. All we ask is why we can't get a lower rate. Our loan has been sold like 3 times and now we are stuck with Bank of America...Guess they are the only one needing help....Thank what you want.

October 25 2011 at 2:51 PM Report abuse +4 rate up rate down Reply
some11bo

There is not much the FED can do.
1. FED makes credit easy.
2. Banks do not lend because they don't think they will get their money back.
3. Borrowers do not borrow because they don't think they can pay it back.
Google for "DEFLATIONARY CRASH" to understand how the money supply can deflate despite FED's printing press.

October 25 2011 at 1:23 PM Report abuse rate up rate down Reply
mdunnjr

I also don't understand if people are earning about the same as they did 5 years ago--and they were able to pay their mortgage without problem--assuming nothing changed with their cash flow--why is it now a problem for them to make their payments in whole and on time? Doesn't make any sense to me. I suppose they are just playing a game so they can get a lower rate. Then why should my tax dollars help them? What do I get from helping them refinance--we all know that in the end--the tax payer will foot the bill on the losses.

What happens when these people sell their home?

October 25 2011 at 12:08 PM Report abuse -5 rate up rate down Reply
2 replies to mdunnjr's comment
phbotham

HELLO, do you live on earth? How about double digit unemployment that wasn't the case 5 years ago. Ya think suddenly having NO income might be a factor? The taxpayers bailed out the big banks, why shouldn't we have more charity in our hearts for struggling Americans?

October 25 2011 at 1:36 PM Report abuse +3 rate up rate down Reply
1 reply to phbotham's comment
Frank

Exactly, true unemployment is somewhere in the low 20% range when you factor unemployed and under-employed. Many people are surviving by using savings to augment their mortgage payments and keep current. Also, the program isn't forgiving loans or writing down principal ( seems only corporations get that perk) but simply reducing the mortgage rate to provide some help. I still doubt however that banks will re-write these loans since most people in this position have probably seen a downtick in their overall credi worthiness using traditional standards.

October 25 2011 at 2:12 PM Report abuse +2 rate up rate down
Barbara

What planet did you come from. Hello the great recession where millions of people lost their jobs overseas.

October 25 2011 at 7:35 PM Report abuse rate up rate down Reply
1 reply to Barbara's comment
Barbara

This reply is for mdunnjr's comments that defy the economic conditions of today. If these were normal times what he/she is saying makes some sense, but not now in the times we are living.

October 25 2011 at 7:37 PM Report abuse rate up rate down
mdunnjr

Why shouldn't people be expected to pony up a fair down payment in order to refinance? Who ever said that owning a home was a financial windfall? Seriously what are people thinking? Isn't it the loose lending standards that got us into this housing mess? Will we ever learn from our mistakes or the mistakes of others? Are we that arrogant a nation? Does the media get it? Do they understand how they further polarize this nation?

October 25 2011 at 12:04 PM Report abuse rate up rate down Reply
2 replies to mdunnjr's comment
phbotham

I'm not looking for a financial windfall. But how about breaking even? I want a decent place to live that won't be taken away from me until I go into the nursing home or the ground. Is it too much to ask that I get the same considertion that we gave the "too big to fail" banks so I can afford to do so?

October 25 2011 at 1:42 PM Report abuse +2 rate up rate down Reply
seattlewkr

Why shouldn't people pony up a fair amount to refi? Because the banks and mortgage lenders caused this mess. They loaned HUGE amounts of money to people who couldn't afford the loans, causing HUGE housing demands and price escalations, victimizing innocent borrowers with HUGE drops in house prices.

REFIS SHOULD BE FRIGGIN' FREE

October 25 2011 at 4:59 PM Report abuse +2 rate up rate down Reply
1 reply to seattlewkr's comment
Mickylitz

seattlewkr

Obviously you're one of those people who doesn't believe in personal responsiblity.
Don't you think should know what they can afford ?
If they can't even make an intelligent decision about the biggest investment of their life ti,e how will they be capable of dealing with the smaller problems life will throw at them.
People buying homes they can't afford to impress God knows who. should lose their homes it may teach them to have a bit of humility and have respect for the tax payers forced to pay for their vanity.

October 26 2011 at 7:48 AM Report abuse -1 rate up rate down
jockmassage26

thats exactly what ive been saying for over a year.. more than half the foreclosures arent even on the market.. they need to pass a mandate that says.. every underwater mortgage whether behind or not.. becomes a special mortgage for the next 6 years.. year one.. 1 percent.. year two 1.5 percent.. year three.. 2..25 percent.. year four 2.75 percent.. year six 3 percent.. and over those five years.. any arrearages are spread out at zero percent.. just like when you buy an auto.. then at year six.. hopefully the markets will be stabilized.. and the loans can go to the current prevailing rates.. this would help all home owners at risk.. it protects those who still have jobs and arent behind as it keeps their homes from losing more value (case and point.. my house has lost 100k in th past two years) and there should be a clause that says if anyone sells their home during that six year period.. all past due amounts must be paid in full.. and if the home sells at a profit the profit goes to the mortgage holder to settle obligations at the original interest rate. its pretty simple.. cut the rates.. this give home owners more money every month.. which they will put ito their house if they intent to keep it for the long haul.. or it injects more money into our economy buy giving the majority of people in this country more disposable income..

October 25 2011 at 12:03 PM Report abuse +3 rate up rate down Reply
2 replies to jockmassage26's comment
phbotham

Hey, I'd sign up for your program immediately! It seems well thought out and very reasonable. I don't want a free ride, I just want a lifeline that I can grab on to and pull myself out before gong under completely.

October 25 2011 at 5:48 PM Report abuse +1 rate up rate down Reply
Barbara

You sound like a smart person. You should run for office.

October 25 2011 at 7:51 PM Report abuse rate up rate down Reply
phbotham

"Lenders will remain under no obligation to refinance a mortgage they hold."

This is the main reason the "new" refinancing scheme will not work. Unless the banks are mandated by law to participate in the program, they will not and the housing market crash will continue and even accelerate. Its time for that law.

October 25 2011 at 11:41 AM Report abuse rate up rate down Reply