Bargain time for mortgage shoppers

So much money, for so many people, is sitting on the table waiting to be tapped.

When it seemed that interest rates couldn't go much lower, they fell more this month, to 3.87 percent on a 30-year mortgage. That's the lowest average rate that Fannie Mae has ever reported.

Last week, the Mortgage Bankers Association noted that rates were the lowest it had ever surveyed on jumbo and 15-year loans, too. Most of the action is in refinancing, which accounts for slightly more than 4 in 5 loan applications, the group said.

While home sales are still bogged down by the uncertain jobs picture, it's a boffo buyer's market for a refinance. There's one huge catch: You and your home have to qualify, and credit remains distressingly tight.

Get past that hurdle, and bargains abound, even for people who refinanced two years ago. Borrowers with a current interest rate of 5 percent can make a refi pay, even in Texas, where closing costs are second-highest in the country.

It's not unusual for homeowners to lower payments, free up monthly cash and recoup their closing costs in less than 24 months. Others are switching to 15-year loans with rates near 3 percent, so they can pay off the debt faster.

What's surprising, and frustrating to the president and Federal Reserve chairman, is that more people aren't jumping into the pool. Refinance applications are coming in at a respectable rate, but nothing like the booms in 2003 and 2009.

Jim Bane of Starkey Mortgage in Fort Worth said that he would get 20 to 30 calls a day during those peak refi periods. Today, it's more like two to three calls a day -- he's busy, not swamped.

The easy credit of the mid-2000s planted the seeds of the financial collapse and Great Recession. So the credit pendulum had to swing, but it appears to have swung too far. Many people won't even try for a new loan, said Judith Smith, who's been originating local mortgages since 1969.

"It's too damn complicated," Smith said, referring to the demands on both borrowers and lenders.

Applicants must meet stricter rules on credit scores, debt-to-income ratios, work history and cash reserves. Some lenders review four years of tax returns, a far cry from the time when people could "state" their income. Large deposits in savings accounts must be explained, along with recent inquiries into credit reports.

Low appraisals block many deals. Home prices have declined less in Texas than elsewhere, but the Dallas-Fort Worth average is still down 8.7 percent from the peak. Values in some neighborhoods have fallen more. A refi won't work for those borrowers, unless they bring cash to the table or get a loan through the latest federal affordable home program.

Private mortgage insurance is also more expensive, adding to the payoff costs. And originators like Smith's Cendera Funding must meet a raft of separate rules set by the big lenders. Bane said that every loan is audited, compared with 1 in 10 in the past.

Put it all together, and ultra-low interest rates aren't delivering as expected. CoreLogic, a California research company, estimates that 28 million homeowners could cut their rates by at least 1 percent if they could get a new loan. Unless they don't owe much, the savings would justify the effort.

In a speech last week, Federal Reserve Chairman Ben Bernanke complained about the drag on the economy from tight credit. He said that outstanding mortgage credit has fallen 13 percent since 2007. In prior recoveries, this measure had begun to grow four years after the business cycle peaked.

"But not this time around," Bernanke told home builders, and he called out originators who had been "very cautious about making loans that could be viewed as less than perfect."

Fewer than half the lenders, for instance, will offer mortgages if a FICO credit score is below 620, he said. But those borrowers could still meet the parameters for government-sponsored groups like Fannie Mae.

In Texas, average credit scores are among the lowest in the country, so tight standards hit hard. But at least there are fewer underwater mortgages, in part because of restrictions on home equity loans. Nationwide, 22 percent of borrowers owe more on their mortgage than the house is worth, according to CoreLogic. In Texas, only 9.5 percent are in that group.

Still, brokers say that many are poised to benefit from so-called HARP 2.0, the federal effort to provide refinancing on underwater mortgages.

"We have a whole database of people who should qualify," said Chad Bates, area manager for the Legacy Group of Security National Mortgage. "We already have some appraisals."

He expects the program to take off next month, as more details are released. President Barack Obama has talked frequently about mass refinancings, saying that responsible homeowners (that is, those who've been making payments) could save $3,000 a year in interest.

"Every time there's a news blip, people call to see if that [program] might help," said Michelle Eldridge, regional sales manager for Wells Fargo Home Mortgage. "We've been in a refi rally for well over a year."

Today's rates are so low, said another mortgage pro, that he bought a rental house as a hedge against future inflation.

"I wanted that 3 percent money," said Marshall Boyd of Southwest Bank. "The window is going to close some time, and we'll never see rates like this again."

We've heard that before, as mortgage rates declined from 8 percent in 2000 and regularly surprised the experts. A few weeks ago, Wells Fargo economists pointed to low Treasury yields and said that mortgages have room to fall further.

Maybe, but there are great deals to make now.

Mitchell Schnurman's column appears Sundays and Thursdays. 817-390-7821

Twitter: @mitchschnurman