It was too loose; now it’s too tight

This morning, we closed on a mortgage refinance, which we did partly because of the lower rates, but mainly to consolidate the initial mortgage and a credit line that we opened a number of years back to do some work on our house (hardwood floors, new HVAC, other stuff).

Anyway, the attorney helping us does this sort of thing all the time. (Over the years, we’ve been through this process with him — closing on a house or refinancing — at least three times.) My wife asked whether he’s keeping busy with these low rates.

Not really, he said. Oh, the demand is way up, all right. The thing is, though, about half of the loans aren’t getting approved.

Before, credit was too loose, which got us into trouble. Now, it’s too tight, which makes it harder to get out of the trouble. He said there are those who hoped real estate would lead us out of these hard times. But not at this rate, he suggested.

Just a little glimpse at the economy from a window other than my own, which I thought I’d pass on.

By the way, we had no trouble getting our refinance, through Palmetto Citizens Federal Credit Union. See the ad at right.

Product placement, baby.

13 thoughts on “It was too loose; now it’s too tight

  1. Doug Ross

    Doesn’t a lower interest rate result in lower interest payments which then causes a lower mortgage tax deduction on income taxes which then results in paying more taxes? All the refi’s should result in increased revenue for the government.

    I’d rather see the banks err on the side of being too tight than too loose. It’s not a bad thing to force people to live well within their means.

    We don’t want to go back to the days where when I sold my home in Northeast Columbia in 2002, the buyers mortgage included closing costs which put their loan amount above the the purchase price. They were underwater on day one.

  2. Kathryn Fenner

    I agree with Doug! [amazing!]

    Most people don’t really budget, and aren’t saving enough for retirement, study after study shows. They don’t know how much they can afford to borrow. The experts need to help!

    People fail to factor in the increased costs associated with a large house, too. If you are underwater on day one, you are a major credit risk, too.

  3. Susanincola

    When underwriting got away from the “three C’s” (Credit, Collateral and Character) it all went south. Which many underwriters were yelling about at the time, but sales’ ears were plugged with money and magical thinking.

  4. Bryan Caskey

    I do a little bit of residential real estate work as a closing attorney, and I would agree with your lawyer’s take. The rates out there are really low right now, but only top-shelf borrowers have access to them.

    On a semi-related note, I think it will be fairly commonplace in the next ten years or so to see a foreclosure on someone’s credit report.

  5. Mark Stewart

    Since the mortgage rejection rate exceeds the unemployment rate by a factor of six, something is definately out of whack. And it isn’t on the borrower side this time. Actually, it probably wasn’t on the borrower side either 5 years ago – except of course within the sub-prime universe. But again, who was making those decisions, the low credit scored?

  6. bud

    My credit was not spectacular but I easily qualified for a low intererst re-fi 2 years ago. Not sure the rules are too tight at all. Let’s not forget the disaster we had when the underwater loans were common. Best to ere on the side of too tight.

  7. Steven Davis II

    I agree with Doug, owning a house should be a privilege, not a right. I know very few people who save for anything these days, but I do know a lot of people who would be on the street or bankrupt if they lost their job for more than six weeks. These are also the same people who bought more house than they can afford and are seriously upside down right now.

    A friend also refinanced last week, and took it for another 30 years. By the time it’s all said and done (without more refinances) he’ll be in the house for more than 50 years before he’s done paying for it. I refinanced and knocked 8 years off the original term.

  8. Steven Davis II

    Brad, topic idea – No half-staff flag for Neil Armstrong, but one for Ted Kennedy. Why is that?

  9. Steve Gordy

    Eleven years we found ourselves in a situation involving “found money”. I gave my wife the choice of paying off the mortgage or investing it from retirement. She made the right choice. Now that we have no long-term debt, borrowing is easy.

  10. tavis micklash

    The sheer volume of paperwork that is required to refinance is daunting to many.

    Also the rules about appraisers being selected randomly is tossing alot of business to people that have no idea what the true prices are in the area.

    Here is an example. I had a work friend that build a house near little mountain. Really nice place big for the area.

    He wanted to Refi and the appraiser (randomly picked out of Charlotte) merely went to the houses closest to him and placed them at their value. The houses weren’t close to the square footage or near as new as his. He also had significant improvements (wrap around porches, really nice kitchen).

    They needed to look closer to town at houses in Irmo or Chapin to find a more appropriate comparison. He just took the easy route and vastly underestimated the house value.

  11. Doug Ross


    What is the benefit to the appraiser to come in with a low value? I would assume that an appraser who consistently underestimated the value would not get much business in the long run.

    I’m also sure your friend could petition the refi company to get another estimate.

  12. `Kathryn Braun Fenner

    I have refinanced three times, to shorter terms,in two different houses,and never found the paperwork to be daunting, or even notable. Maybe I have a higher tolerance, but I seem to recall practically none. Maybe if you are self-employed?

  13. tavis micklash

    “What is the benefit to the appraiser to come in with a low value? I would assume that an appraser who consistently underestimated the value would not get much business in the long run.”

    They explained to me that the bank no longer can actually choose to work with a specific appraiser. It is almost an electronic registry that picks eligible appraisers randomly.

    Supposedly it was part of the banking crack downs. Too many appraisers were giving overinflated appraisals to banks allowing loans far exceeding the houses value.

    I’m in no way a banker so maybe their are some real experts around here to elaborate/ correct me.

    “I’m also sure your friend could petition the refi company to get another estimate.”

    I think he got a loan. It was a year ago and honestly haven’t talked to him about it in a while. Appraisals aren’t free though so it probably cost him another 300/ 400 bucks though.

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