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Approvals Limited During Rise in Applications

[Jan 15, 2009.]


Demand for mortgages has skyrocketed as of late as mortgage rates continue their decline. Mortgage Bankers Association said its seasonally adjusted index of mortgage applications, which includes both purchase and refinance loans, for the week ended Jan. 9 increased 15.8 percent to 1,324.8, the highest reading since the week ended July 11, 2003, when it reached 1,358.2.

The number of loans being approved, however, is not keeping pace with the number of new applications.

According to Doug Duncan, chief economist of Fannie Mae, only about a third of mortgage holders are in a position where obtaining an approval to refinance is possible.

In a Wall Street Journal Article:

Nearly 70% of borrowers don't make the cut, he said, most often because their credit isn't good enough or they don't have sufficient home equity. A significant number of homeowners owe more than the current value of their homes, a situation sometimes known as being "under water." Others can't profitably refinance, often because they hold jumbo mortgages, those above the $625,000 limit for loans that can be bought or guaranteed by Fannie Mae or Freddie Mac in the highest-cost areas.

While very little can be done by a homeowner to boost their home's value in this market, mortgage holders considering refinancing in the next few months are strongly encouraged to take control of their credit reports and scores. Credit scores have become increasingly important in this lending environment and small movements in scores can mean the difference of thousands of dollars in higher rates and fees.

Consumers should start by obtaining a copy of their credit report and FICO credit scores from their loan officer or by obtaining them on their own. Free credit reports are available through AnnualCreditReport.com once every 12 months to consumers and FICO scores can be obtained through Fair Isaac's consumer site, MyFico.com.


About Author:

Chris Rocks is the Regional Director of the National Credit Federation (NCF), a consumer advocacy group that assists small business owners and consumers overcome debt and credit challenges.

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