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Refinance Ratios Boosted by Improved Employment Figures, New Short Sale Policy

[Apr 7, 2010.]


As anyone who has ever refinanced a mortgage can attest to, the word "ratio" is a major part of the refinance equation. Mortgage brokers talk about "front end" and "back end" ratios, loan-to-value ratios, and so forth. It may sound like gibberish, but when your refi is on the line, ratios need to make sense.

If ratios don't make sense, from the lender perspective, that refinance is not happening. Gone are the days when the ratios could be skewed to the maximum but the loan could still be funded because the FHA or Fannie Mae or Freddie Mac wanted everyone to own a home and was willing to take that risk.

Over the past week, two potentially important news events occurred that may, over time, return two refinancing ratios to some degree of health for the average American.

Most Important Underestimated Refinance News: Employment Numbers

According to the most recent unemployment numbers, U.S. employers added 162,000 jobs in March, the biggest job gain since May of 2007. Yes, there is a way to say that this news is not that great--for example, U.S. government hiring for the census was a big part of that number--but for the homeowner who is looking to refinance, there is no doubt that better employment figures are hugely important.

For example, let's think about the married couple where one spouse lost a job, and they are in an adjustable rate mortgage that is set to adjust in 2010. This couple has been unable to refinance due to an unmanageable debt-to-income ratio--which of course is being caused by one spouse having lost his or her source of income.

If both spouses can get working again, that debt-to-income ratio will improve significantly. That may make a refinance possible, especially if the married couple plays some hardball with the lender and explains that a long, drawn-out, expensive foreclosure process is in nobody's interest.

Expedited Short Sale Rules Would Be Big Boon for Refinance Hopefuls

Also this week, it was announced that the Obama Administration is going to be putting some pressure on lenders to make the short sale process less of a complete and total mess.

Two main details of this new short sale program would be that homeowners who agree to and complete a short sale would receive $3,000 to help with moving expenses, and meanwhile lenders who have mortgages against these properties would be required to set a minimum amount that they will accept for the house, and then if a bid comes in above that amount, the lender would be required to accept that bid.

Streamlining the short sale process could help improve the all-important loan-to-value ratio for refinancing. Properties that go all the way through the foreclosure process, until the lender actually takes back the house, are frequently torn up and sell for far less than short-saled properties where the seller is not so angry at the bank that they're punching holes in the wall and such.

If fewer houses sell for drastically reduced prices because they're severely damaged, that should contribute to the value of the surrounding homes, many of which may be inhabited by people who would love to refinance, but are having trouble meeting the loan-to-value requirements of lenders.


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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