Are Loans Easier to Come By?

QUESTION:

Given that mortgage rates are at or near historic lows, shouldn’t it be easier to qualify for a loan since monthly payments are smaller than recent years?

ANSWER:

It’s logical to believe that lower rates mean smaller payments and less difficulty getting a loan. The catch is that mortgage rates are not the only issue to consider.

For instance, while it’s true that loan rates are low, it’s also true that incomes have generally fallen. The Census Bureau says real median household income fell 5 percent between 1999 and 2009. Home values nationwide were 19.1 percent lower in August than in April 2007 according to the Federal Housing Finance Agency. The situation in hard-hit foreclosure centers is worse. Also, many people who were foreclosed in the past two to five years simply cannot get mortgages, no matter what their economic status.

The government is trying to loosen loan standards with a new program that allows borrowers to refinance no matter how much the value of their homes has fallen. Previously the program was unavailable when properties were more than 125 percent under water.

The revised guidelines for the Home Affordable Refinance Program should allow many additional borrowers to refinance to a lower rate, especially in states such as Nevada, California, Florida, Michigan and Arizona, where home values have fallen sharply.

Lower monthly costs should reduce future foreclosure rates and also stimulate the economy because borrowers will have more cash to spend. The catch is that the new HARP program also implies a lot of risk to the government because newly qualifying borrower properties are so thoroughly upside-down.

Despite huge economic problems the reality is that mortgages are being made and homeownership levels are actually rising. The Census Bureau reports that ownership increased in the third quarter by .4 percent, something that could not happen without ready access to financing.

If you have a rate that is high by today’s standards then speak with local lenders. Such discussions can’t possibly hurt – and they may lead to lower monthly bills.