The Days of Refinancing for Fast Cash are Gone

Americans are in search of fast cash, but looking at the number of refinance requests, you would never know it. A new survey is showing that homeowners aren’t bothering to refinance despite the Federal Reserve pushing mortgage rates to all time lows. Though many are quick to point the finger at homeowners unwilling to try to refinance, in-depth studies are showing that there is a growing group of owners who have tried to refinance, but can’t.

Looking to refinancing

The growing reality in today’s economic climate is that home values have plummeted. People who had paid religiously into their mortgages for years were surprised when the economy ate away at the equity they thought they had amassed. That is the stickler when it comes to refinancing. People have such low equity that it hardly qualifies them for a refinance. Add to the equity issue the fact that lenders are much stricter now post-recession and banks are adding higher fees, and it makes for a sector of homeowners who have few options.

The new states of interest rates and home value

The survey done by Credit Suisse showed that about 39% of homeowners in the 30-year fixed-rate segment currently have interest rates of over 7%. A good number of those people could bring their interest rates down two full percentage points if they were able to refinance at current rates. Despite the possibility, however, the number of refinance applications in January of this year was lower than it was this time last year.

Another chronic problem the recession created was the increase of underwater mortgages. This is a condition where homeowners owe more on their houses than what the property is worth. Recent surveys show that almost 25% of all homeowners are currently underwater. Of course that also makes it impossible for them to refinance and find relief. The reality of the banking world is that banks want collateral to back up the loans they are making and with drastically diminishing home values, they aren’t willing to take on the risk. A homeowner, who has no equity on the books, is left with few options when it comes to maneuvering their debt and finding fast cash.

What is being done to help

The overriding issue when it comes to refinancing is how things can change to make more homeowners qualify. Most experts agree that due to lenders creating stricter rules, they are undermining the government’s efforts to allow homeowners to use the lowered interest rate advantage. It defeats the purpose of sustained lows in interest. Fannie Mae and Freddie Mac are also adding their own fees in an effort to raise revenue and mitigate losses. It’s easy to see how mitigating losses and maintaining low interest rates are counteracting one another. Fannie Mae and Freddie Mac are seeking a balance between taking on the risk of low-credit scoring homeowners and giving more people access to credit and refinancing options.

In the future expect more homeowners to be able to refinance and find fast cash like they did in the past. There is a caution, however, that those with drastically low credit scores most likely will not be able to refinance, regardless of what changes lenders make. Though the government and lenders are working together to create more customer-friendly climates for those with less-than-perfect credit, it will take much longer for low-credit customers to find any relief.

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