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Many get shut out on chance to refinance

Lenders shying from all risks

By Jenifer B. McKim
Globe Staff / September 22, 2011

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With interest rates scraping historically low levels, Wellesley mortgage broker Chris Shedd is doing repeat business these days, helping a select group of homeowners refinance their loans for the second or third time to shave more dollars off already low monthly payments.

In the mortgage industry they are known as “serial refinancers’’ - homeowners with enough income and property equity to save more money whenever rates dip.

But Shedd said other customers aren’t even trying to refinance. They’ve been rejected enough times to know they can’t get the rock-bottom rates being promoted by lenders - about 4 percent for a 30-year fixed-rate loan.

“I can’t blame them,’’ said Shedd, president of Mortgage Resources Inc. “They don’t like to be told no, no, no.’’

That divide between those who can and can’t refinance is more distinct than ever, say brokers and housing advocates, as lenders shy away from doing business with anyone whose situation even hints at risk. The result is those who might benefit most from refinancing are being shut out of the best rates, most often because their property values have eroded or their income has dropped.

Meantime, some fortunate homeowners are finding that refinancing has never been easier. TD Bank, for example, is offering customers with good payment records a chance to lower their rates for just a small fee - and without a property appraisal.

Existing-homes sales rose 7.7% in August. B6

Excluding so many people from the opportunity to get a better loan seems almost cruel, said Glenn Kelman, chief executive of Redfin, a Seattle online brokerage that serves the Boston area.

“There is something cynical about lowering interest rates and then making sure that the people who really need access to credit the most can’t get it,’’ Kelman said.

That’s led to a decline in the number of loans being refinanced. During the second week of September, US mortgage refinances dropped 25 percent compared with the same period last year, according to the Mortgage Bankers Association in Washington.

“A lot of people that could refinance successfully, a sizeable percentage of folks probably have done so,’’ said Keith Gumbinger, vice president of, a mortgage information website based in New Jersey. “There are millions of borrowers who would like the chance to refinance but cannot.’’

Homeowners unable to secure the most attractive loan rates include about 234,000 in Massachusetts, nearly 16 percent, who are “underwater’’ - meaning they owe more than their homes are worth - according to a September report by CoreLogic, a California research and consulting company.

Nationwide, about 10.9 million homeowners, 22.5 percent, are in the same predicament, the study said. Three-quarters of them are paying interest above market rates - higher than 5.1 percent.

Refinancing is also getting tougher for some homeowners with so-called jumbo mortgages. The federal government this month is scaling back a program that helps them qualify for US-backed loans with lower interest rates. In Massachusetts, homeowners with mortgages between $465,000 and $523,750 could be affected. That includes about 6 percent of home sales this year in Suffolk, Norfolk, and Middlesex counties, according to Redfin.

Thomas Gleason, executive director of MassHousing, the state’s affordable housing bank, said lenders have become too strict in an effort to avoid the mistakes that led to the national housing downturn that began in 2005.

“If you could fog a mirror, you could get a mortgage,’’ Gleason said of borrowing in those days. But now, he said, the pendulum has swung too far in the other direction.

“It’s like we have forgotten how to underwrite a sustainable mortgage,’’ he said.

In unveiling his jobs bill earlier this month, President Obama said he wants to “work with federal housing agencies to help more people refinance,’’ referring to improvements to the Home Affordable Refinance Program, which was introduced in 2009 as the housing crisis worsened and foreclosures rose. The program has resulted in about 838,000 completed refinances, far short of the goal of millions. Under the program, borrowers with loans backed by Fannie Mae or Freddie Mac can qualify to refinance even if their loans are 25 percent larger than the current value of their homes.

Some housing advocates say a revamped program could stimulate the economy by giving millions of homeowners more money to spend. But critics say any stimulus effect would be mitigated because investors in mortgage-backed securities would earn less interest.

Either way, few have faith in the government’s ability to provide relief to homeowners with higher interest rates. Like the Home Affordable Refinance Program, other federal efforts to ease pressure on borrowers have similarly disappointed.

“Realistically, none of these government programs have been a big success,’’ said Guy Cecala, publisher of Inside Mortgage Finance, an industry newsletter based in Virginia. “They have a lot of restrictions.’’

And stymied borrowers’ frustration is being heightened by the barrage of come-ons from mortgage companies in print, online, and radio advertisements. Rates won’t stay this low forever, they warn, so act now.

“There are people being left out of the opportunity,’’ said Elizabeth Phelan, chairwoman of the Massachusetts Mortgage Bankers Association. “We haven’t seen these kinds of rates in decades.’’

Jenifer B. McKim can be reached at