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Is Refinance Frustration Hampering American Recovery?

[Mar 22, 2010.]


Statistics and stories continue to emerge showing that inability to refinance a home loan can be a severely dehabilitating financial scenario in modern America. For example, a new study shows that Americans are repaying their credit card debts with more urgency than their mortgages in many cases.

From CBS Marketwatch:

"The number of consumers delinquent on their mortgages but current on their credit cards rose to 6.6% in the third quarter of 2009 from 4.3% in the first quarter of 2008, according to a TransUnion study of 27 million anonymous consumer records pulled randomly from its database."

Can this startling statistic be attributed to refinance-related frustrations?


Dreaming The Impossible Refinance

The first instance that keeps appearing when you think about refinance news is this reality that there are millions of people who couldn't refinance their way out of a wet paper bag at this point. These millions include some banks who can't refinance at manageable terms with their lenders.

The classic case, though, is very common: The Impossible Refinance.

This elusive beast that would enable this young single parent or older widow or working class married couple to actually pay the bills on a monthly basis.

With 2005 vintage adjustable rate ARMs coming due this year and next, this person in this home cannot even sniff the government assisted mortgage refinance programs, which require that your new refinance loan be no more than 125 percent of the value of your home.

Telling this to someone whose home loan is 500 percent of what they could legitimately sell their property for is going to naturally lead to some frustration among the American people.

News Flash: Banks Continue to Be Banks

Another refinance news item that surfaces often pertains to the idea that banks have a moral obligation to lend money, and are not doing so with any degree of generosity.

Even for the person who is frustrated by an inability to refinance, or a perceived inability to refinance, this view that banks, which are led by bankers, are generous and should be moreso is utterly absurd.

Banks, especially large banks, exist purely and simply to create value for their partners and shareholders. Refinances that don't make any kind of sense at all are not worth making, unless the government is planning to pick up the entire tab and politics make it necessary.

In this kind of environment, the third bit of refinance news that's been hitting lately is not nearly as shocking as one might have imagined 20 years ago: the maturation of the strategic default option.


About Author:

Andrew Freiburghouse is a writer and businessman. He has worked as a magazine reporter, tax preparer, screenwriter, copywriter, and loan officer. He graduated from Santa Clara University in 1999 with a B.A. in English. Andrew was born and raised in the City of Los Angeles.

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