Home loan refinancing faces roadblocks

03.02.09
By Sarah Beldo

Most people may agree that the tumultuous housing market needs to regain stability before the economy can recover, but it is harder to reach agreement about what needs to be done.

In the past several months, many homeowners have been attracted to the prospect of lowering their monthly payments by refinancing their existing home loan.

However, a number of these borrowers are running into difficulties because of lenders' tighter criteria. Banks are seeking higher credit scores and are charging higher fees and rates to those who do not measure up to the new standards.

While in the past, a FICO score in the mid-600s would likely have led to a favorable interest rate, several news reports suggest lenders are now looking for scores well above 700.

Mortgage banker Brian Wickert told Bloomberg that current lending conditions have "gotten tougher."

"The person who has decided he wants to give himself his own personal economic stimulus package by refinancing at low rates is being stymied by the rules and the fees," he explained.

Citing a riskier lending environment, Fannie Mae and Freddie Mac have announced that from April 1, they will be raising their fees for lenders based on both credit scores and the loan-to-value ratio. These fees are usually passed on to borrowers.

This means that people whose properties have lost value may still be charged higher fees to refinance, even if their credit score is good.  

In the midst of these difficulties, the government is taking some steps to increase access to refinancing. President Barack Obama's housing plan contains some help for people who are looking to move onto a home loan with lower monthly payments.

But, in this uncertain lending environment, many people may have to just be patient and see how banks respond to the evidence they provide with their refinancing application.

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Several news reports suggest lenders are now looking for scores well above 700.