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RISMEDIA, September 18, 2010—(MCT)—The lowest mortgage interest rates in decades have sent thousands of homeowners eager to refinance their home loans scurrying into lenders’ offices. Many leave empty-handed and upset. A multipronged whammy of lower home values, new appraisal guidelines and tighter lending requirements frequently derail consumers from snaring loans at lower interest rates. Lenders say they are closing 60-70% of refinancings.

“It’s a blow to a borrower’s ego,” said Todd Gosden, a loan originator at Avenue Mortgage in Naperville, Ill. “The guy who makes $250,000 a year, managing 150 people, who says, ‘I want to take advantage of this,’ and I have to say, ‘You can’t.’ The reaction is, ‘Are you kidding me?'”

A decade ago, all types of consumers were able to qualify for a particular interest rate.

In the current era of risk-based pricing, numerous variables determine the rate offered to an individual, including whether the property is a single-family home or condominium, and loan-level pricing adjustments are applied to eight different tiers of credit scores.

“There are more people that can’t get a refinance today than two to three years ago,” said Brad Blackwell, an executive vice president at Wells Fargo.

A case in point is a couple who six months ago easily refinanced the $365,000 interest-only loan on their $900,000 home, said David Hochberg, president of Townstone Financial Inc. in Chicago. Hochberg said the man’s credit score was 790; hers was 715.

But since the last refinancing, credit guidelines have tightened, and the minimum credit score now required for a new loan at the rate they sought was 720. The only option, which the couple didn’t take, would have been for the wife to remove her name, and thus her credit score, from the mortgage application.

Self-employed borrowers face extra challenges because they have to produce two years of tax returns. If the owner of a sole proprietorship has a lot of tax write-offs that alter adjusted gross income, or the most recent year shows a substantial income decline, it can adversely affect his or her application.

Appraisals are upending many refinancings as well. During the early part of the housing crisis, appraisers tried to separate distressed property transactions from conventional home purchases that are used as comparable sales in a neighborhood. But in some neighborhoods, distressed properties are the market and have lowered home values to a level that still surprises homeowners.

“There’s definitely some people who have a realistic grasp on the market and what their home is really worth, and there’s definitely a portion that don’t believe it’s gone down,” said Chicago-area real estate appraiser Chip Wagner.

In some cases, loan officers run the numbers with potential customers before ordering the appraisals so consumers don’t have to pay the costs of an appraisal and then be denied a new loan. Consumers can also check national and local real estate websites for the sales prices of area homes.

Current appraisal rules mean a loan officer can’t directly contact an appraiser to question a report or detail the home value that’s needed to qualify for a loan. But homeowners can always walk through a home with an appraiser, pointing out upgrades and improvements made to the property since the last appraisal and volunteering what home value is needed.

If the appraisal comes up short, one increasingly popular option is for homeowners to bring money to the closing, in effect paying down the mortgage so there’s the required 20% equity in the home. That way, the loan could be secured by Fannie Mae or Freddie Mac.

“We have a lot of clients coming in, paying the loan down $30,000, $40,000,” said Ken Perlmutter, owner of Perl Mortgage Inc.

During the second quarter, 22% of Freddie Mac-backed customers who refinanced first mortgages did so by negotiating a “cash in” mortgage, tying the record for the third-highest share of cash-in refinancings since Freddie Mac started tracking refinancing patterns in 1985.

Before liquidating stocks or savings accounts, consumers need to figure the estimated mortgage savings versus returns on current investments. By bringing a check for $4,500 to the closing, one of Gosden’s customers reduced his loan-to-value ratio to 80% from 81% and was able to trim the interest rate of a 15-year mortgage by three-quarters of a percentage point.

Consumers who are underwater, meaning they owe more on the mortgage than the home is worth and are unable to meet the 80% threshold are seeking assistance from federal government programs. Some are getting help through the Home Affordable Refinance Program, a sister effort of the Obama administration’s loan-modification program. But the program’s success has been stymied, in part, because second lien holders have to agree to the refinancing.

Through the first five months of the year, 152,103 borrowers with loan-to-value ratios of greater than 80% but less than 105% refinanced their Fannie Mae- and Freddie Mac-backed homes through the federal program. However, borrowers seriously underwater, with loan-to-value ratios of 105-125% had much less success. Only 8,420 were successful in refinancing in the January-May period, according to the Federal Housing Finance Agency.

While the program ostensibly is for loans with a loan-to-value ratio of up to 125%, many lenders are unwilling to take that risk. Plus additional overlays applied to those loans mean that while consumers may get a lower rate than their current one, it’s not the lowest rate.

(c) 2010, Chicago Tribune.

Distributed by McClatchy-Tribune Information Services.