Big Delays in Mortgage Refinancing

Often, the ability to refinance a mortgage, resulting in a lower monthly payment, can be the difference between whether individuals are forced to file bankruptcy or not. Interest rates have been hovering around 4% lately, leading to hundreds of thousands of homeowners seeking to refinance their mortgages. These low rates have helped thousands of homeowners to free up cash and/or pay off debts. Borrowers that refinanced during the first quarter of 2012 reduced their first year interest payments by $2,900 according to Freddie Mac.

However, the amound of homeowners seeking to refinance recently has clogged the mortgage pipeline. Fewer banks now control a larger share of the mortgage market than they did before the financial crisis. In 2005 independent mortgage brokers accounted for 31% of mortgage originations. That number is now at less than 10%. This helped rid the industry of lenders that were making questionable loans but has reduced options for borrowers. The U.S.'s four biggest banks now acocunt for 55% of all loan originations, up from 38% in 2004.

The nations's largest lender, Wells Fargo, third-ranked Citigroup, and fourth-ranked Bank of America are now advising borrowers to expect refinances to take as long as 90 days. Wells Fargo and Citigroup say they are picking up the extra cost of locking in the interst rate for longer than normal to protect customers if rates rise. Wells Fargo says it has also added staff. J.P. Morgan Chase, the third-largest mortgage lender, says it is telling borrowers to expect refinances to close within 45-60 days. It hired more than 1,100 new employees in late 2011 to handle mortgage originations and continues to hire. Citigroup has also added staff and streamlined processes to cut its average refinance time from 77 days to less than 50 days. Bank of America says it has added 500 employees in response to the latest surge.

Banks are also now being more careful about who they lend to and how they process loans. The housing crisis wiped away $7 trillion in household equity, leaving many homeowners with too much debt to qualify for new loans. Lenders are now being more cautious. For example, Fannie Mae and Freddie Mac have added new requirements to improve loan quality for all mortgages. Their appraisal packets now must include a photograph of all bathroom toilets to verify the number of bathrooms in a house.

Demand for refinancing has also surged in recent months due to the Obama administration's push to make it easier for homeowners with Fannie and Freddie loans to refinance, even if they don't have strong credit or equity in their home. That program, known as HAMP (Home Affordable Refinance Program), has recently accounted for up to 1/3 of recent refinance applications. President Obama is also renewing a push to enable refinancing for underwater borrowers (borrowers who owe more on their house than it is currently worth) on homes whose loans aren't backed by Fannie or Freddie.

It now takes an average of more than 70 days to complete a refinance, up from 45 days a year ago. Additionally, some larger lenders have boosted their rates to hold down volume while increasing profit. If you are considering refinancing you may want to look at smaller, local banks, which may be able to offer you a better rate and a quicker closing. I welcome any comments or questions. Thanks for reading!