Why it is Getting Harder for Californians to Refinance Their Home Loans

by Sheryl Landrum
CMR Columnist

The housing collapse has affected the economy drastically. A year ago the news was all about the woes of the sub-prime mortgage industry. Then came the foreclosure surge, followed by the failure of many prime lending institutions. As the economy stalls, however, mortgage interest rates are dropping. While it appears to be a great time for homeowners with adjustable rate mortgages to refinance, many of them can't. The reason? As interest rates have fallen, so have home values.

Home Refinance: The Party Is Over

California and other areas experienced a huge increase in home values over the past few years. In January of 2000, San Diego boasted a median price of $230,000 for a resale home; in May of 2006, that median price had risen to $574,000. That trend has reversed itself and the housing market has softened. In November of 2007, the median price in San Diego was down to $500,000 and continues to fall. Now, if you want to refinance, you have to have equity; in many places home equity is becoming scarce.

Why Homeowners Can't Refinance Their Mortgages

Driven by escalating home values, exuberant homeowners pulled as much cash as they could from their homes by taking second mortgages or cash-out refinances. Others chose option ARMs and interest-only loans, using the equity in their houses to keep their payments low. And as long as values continued to rise there were few problems.

Now, homeowners face a triple threat of lower values, mortgages resetting to higher rates, and sharply increasing payments for those with option ARMs and interest-only loans. Blowback from the sub-prime crisis and the explosion of foreclosures caused a precipitous drop in home values, and homeowners now find themselves with homes worth less than what is owed. Those stuck with risky loans can't get out of them.

Talk to a Lender

If you have been considering a home refinance, don't wait until your home value drops further, now is the time to move. Home values have fallen in million dollar neighborhoods as well as less expensive developments. Begin your refinance search today, save your equity, and get a mortgage payment that will work for you.

Sources
Withering of Nation's Home Prices Continues, The San Diego Union Tribune, Wednesday, January 30, 2008.

About the Author
Sheryl Landrum is a Loan Officer and a freelance writer specializing in mortgage issues.

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