Every month for a dozen years, Claude Sessoms tore a coupon from his mortgage payment book and sent his check on time to Provident Savings Bank. But when the Forest Park man with the yellow frame home tried to cut his payment by refinancing recently, Provident turned him down because he'd lost his job.
With mortgage rates at a 14-year low of 8 percent, interest in refinancing has rocketed in recent weeks, Maryland lenders report. But tight credit standards, low home appraisals and economic problems, such as unemployment, mean many applicants who could benefit from lower rates, like Mr. Sessoms, are locked out of refinancing.
Lenders say refinance applications have doubled or tripled since Labor Day and tell how call volume was especially heavy yesterday, after mortgage rates clicked down once again last Friday. "But only around 50 to 65 percent of the applications to refinance actually close," observes Jerry Flowers, co-owner of First Home Corp., a mortgage banking firm based in Severna Park.
By refinancing, Mr. Sessoms could have cut his $320 mortgage payment by $71 a month. He owed $10,500 on the five-bedroom home. And although the ironworker, who once installed windows in downtown Baltimore skyscrapers, lost his job last year because of the downturn in construction, he has been able to keep up his house payments because of substantial savings and an annuity paid by his union. Still, Provident turned him down.
"Here we have all these banks restructuring million-dollar
commercial real estate deals, and the little man can't even refinance his own home," says Mr. Sessoms, 40.
Provident is hardly alone in rejecting applicants such as Mr. Sessoms.
Joblessness is increasing, but nervous bankers nursing bad loan portfolios are more insistent than ever that mortgage applicants have steady employment. They're also enforcing credit standards more strenuously, eliminating applicants with blotchy credit records.
"We're a lot stricter now," says Buddy Koolhof, branch manager for NVR Mortgage in Owings Mills.
Another problem for those interested in refinancing is that appraisals are often below borrowers' expectations. In many places, property values have been stagnant or have slumped in recent years. But homeowners cling to exaggerated notions of their home's worth, lenders say.
"We have seen inflated estimates of property values by applicants," says Michael Callahan, president of Genesis Mortgage Co., an Owings Mills-based mortgage banking firm. A Towson doctor recently estimated the value of his contemporary home at $550,000, but the appraiser who valued it put its worth at $440,000, Mr. Callahan recalls.
For many people, a low appraisal means the loan cannot be made because the owner's equity in the property is insufficient to meet the lender's guidelines.
In some cases, refinanced mortgages don't make it through the pipeline at one lender's office because the homeowner seeking the loan has switched to another lender in pursuit of a lower rate -- a source of aggravation to lenders, Mr. Flowers says.
"It's just very frustrating at times. We have one of the few industries in the world where we perform on good faith in the hope that, in 60 days when closing takes place, we'll get paid," Mr. Flowers says.
To be sure, Federal Reserve action to lower interest rates -- which has had a direct impact on mortgage rates and is designed to stimulate the sluggish U.S. economy -- has brought more smiles than frowns to the faces of refinance applicants.
"Our refinance volume has been extremely healthy since Labor Day," says Tom Riehl, a vice president in the residential lending division of Baltimore-based Loyola Federal Savings & Loan. Each time rates fall, more homeowners are drawn into the refinance market, he says.
Fully a quarter of the loans closed by First Home Mortgage now involve refinancings rather than loans for homes being purchased -- up from 10 percent six months ago, says Mr. Flowers. And for many lenders, the percentage of refinanced loans is higher still, he points out.
Despite a dramatic increase in refinance applications, local lenders say they've been reluctant to hire additional loan processors to handle the crush, as they did during the last refinance surge in 1986. Most are adding temporary employees or working their regular people overtime to deal with the extra work.
Mr. Koolhof, the NVR Mortgage executive, says his employees are working late into the evening, seven days a week, to handle the workload. "I've got gray hairs to prove how busy we are," he says.
His reluctance to hire more staff is based on uncertainty about the economy. "We don't staff up for these things because the Lord giveth and the Lord taketh away. We don't want to be hiring people and having to lay them off in a couple months if the rates go back up," he says.