Investors Business Daily - Thursday June 10, 2010

Mortgage interest rates have slipped nearly two percentage points below their housing boom peak, and near a record low. On Thursday, the average struck bottom for the year, Freddie Mac said — 4.72% plus 0.7 point for a 30-year fixed-rate mortgage.

That makes it a very good time to refinance — for those who can. Today even people with great credit may be unable to qualify for the advertised rates, or get a refi at all.

Getting the best deal on a refi takes not only good credit, but also sufficient, fully documented income and enough home equity. People in this category are securing rates that experts call 50-year lows.

Some other borrowers may be unable to refi, thwarted by today's tight lending standards, job losses and depressed real estate values that leave them with little equity from home purchases in recent years.

The Mortgage Bankers Association detailed borrower problems in its latest report on refi activity, which fell 14% last week after rising the previous four on favorable rates.

"Despite the historically low rates, many homeowners have already refinanced recently, remain underwater on their mortgages, have uncertain job situations, or have damaged credit following this downturn, and therefore may not qualify to refinance," said Michael Fratantoni, the MBA's vice president of research and economics, in a Wednesday data release.

Refinancing slid even though mortgage interest rates fell last week.

Mortgage rates typically follow the yields of longer-term Treasuries up or down. Lately it's down, as the European debt crisis causes a "flight to safety" into U.S. Treasuries, says Keith Gumbinger, vice president of HSH Associates, which surveys mortgage lenders each week.

"We have not seen mortgage rates lower than this in upwards of 50 years," Gumbinger said.

He thinks they will start heading up on any good news, such as in jobs data or stabilizing of the euro zone.

Getting a good interest rate is paramount, but borrowers also need to shop for and negotiate loan fees. Market watchers are reporting higher fees among lenders today.

The real estate bust has resulted in fewer mortgage brokers and lenders, and arguably less competition between them. In this environment, only borrowers with top-notch credit, solid financials and a "deep equity position" can "access the lowest rates," Gumbinger said.

Lenders are trying to make up for foreclosure losses by earning more in new originations and refinances, says Steve Brown, CEO of Pacific Coast Bankers' Bank, in San Francisco, which provides banking services to 4,000 community banks.

The era of no-doc loans is long gone amid tightened regulations. Today's originators push a lot of paper to complete a loan, and want to get paid for their efforts.

The top 5 lenders — Bank of America, Wells Fargo, JPMorgan Chase, U.S. Bancorp and Citigroup — "represent the vast majority of all loans in the U.S.," Brown said. But they sell mortgages with largely the same set of requirements, as nearly all home loans today are backed by the Federal Housing Administration, Fannie Mae (NYSE:FNM - News) and Freddie Mac (NYSE:FRE - News).

But borrowers should still shop for the lowest interest rates and fees. And they should question inflated charges for document services, wire transfers and Fed Ex transfers.

Loan originators say a borrower should plan for a refinance to take 30 to 60 days. With falling home prices and new appraisal rules, getting an appraisal can be a stumbling block for a refinance.

"They might have to have the home appraised a couple of times to get a solid valuation," Gumbinger said.

One would think, given all that's been reported about unscrupulous lending during the boom, that borrowers would be shopping harder and spending more time at it. But that's not what polling shows.

"Borrowers aren't shopping any more diligently now for loans than they did in the past," said Dr. Stan Humphries, chief economist for real estate Web site Zillow.com. Borrowers surveyed spend just a median 5 hours shopping for a mortgage, when they spend 10 hours shopping for a car, Zillow says. And 31% of borrowers spent less than 2 hours researching their home loans.

About half of all borrowers "only got one or two quotes" for their home loan, Humphries said. He believes they should get at least four quotes. And he says those should be on different products (a 30-year fixed rate loan and an adjustable-rate mortgage or 15-year fixed rate loan) so they can see how the fees, interest rates and total payoff stack up.

Exotic loans are pretty much a thing of the past. Fixed-rate 30-year loans are standard.

"People have come to terms with wanting to have the security ," said Justin Bayle, senior loan officer at CS Financial in Beverly Hills, Calif.

ARMs are a small portion of loan originations today. The indexes that ARM interest rates reset against are, helpfully, very low now. But borrowers should weigh this against "locking into a low rate for the long term," said Ephraim Schwartz, a mortgage broker and partner with O'Dette Mortgage Group, in San Francisco.