Tap Running Dry On Mortgage Refinancing

Higher interest rates, cooling housing markets, restrictive mortgages and more cautious banks are combining to choke off the home refinancing market. The current wave of mortgage defaults could be just the "tip of the iceberg."

2 minute read

February 12, 2007, 10:00 AM PST

By Alex Pearlstein


"With rates on many homeowners' adjustable-rate mortgages rising, some who would like to refinance into a new loan are finding they can't. In some cases, that is because their loan carries a prepayment penalty, which would force them to come up with thousands of dollars if they refinance in the first few years."

"Other borrowers are getting caught short by a changing housing market -- one in which home prices have flattened and lenders are beginning to tighten their standards after a long period of making mortgages easier and easier to get. The challenges are greatest for homeowners whose credit has declined since they took out their last loan and for those who have little if any equity."

"These new challenges come at a time when many borrowers who took out adjustable-rate mortgages are facing higher payments. There are about $1.1 trillion to $1.5 trillion in ARMs that will face rate increases this year, according to the Mortgage Bankers Association."

"The challenges facing borrowers are becoming more apparent at a time when opportunities for refinancing are narrowing... Meanwhile, there are signs that some lenders are beginning to tighten their standards."

A number of banks have also recently announced that they have underestimated the number of bad loans made to sub-prime borrowers.

[Editor's note: Although this article is only available to WSJ subscribers, it is available to Planetizen readers for free through the link below for a period of seven days.]

Thursday, February 8, 2007 in The Wall Street Journal

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