It’s definitely a bad time to refinance your mortgage. 30-year mortgage rates are the highest in decades. But not so long ago, during the 2020 pandemic, rates fell below 3%, and it was a good time to refinance.
About $14 trillion in outstanding mortgages were then refinanced. Lenders performed well and built up strong cash positions on their balance sheets. Most consumers have also done well, locking in on low fixed rates that will cushion them through this cycle of high interest rates and inflation.
But here’s the thing: millions of low- and moderate-income Americans haven’t refinanced and are now stuck with expensive mortgage payments.
It’s a myth that banks and lenders have somehow neglected to refinance the loans of Americans who have less means. Or in financial jargon, those in the low to moderate income (LMI) segment. But that’s not right. When rates are low, lenders benefit from booming refinancing activity. The phones are ringing non-stop as homeowners look to refinance their mortgage and take advantage of lower rates.
This LMI group has the most to gain by refinancing. The rising cost of living has made it difficult for many Americans to meet their mortgage payments. This is especially true for IMT families, who often struggle to find enough money to cover their monthly expenses.
If they had locked in lower rates during the pandemic years, they would have more money now during this time of high inflation. Unfortunately, IMTs aren’t as proactive in calling their lenders to refinance. Many don’t know they have the ability to refinance. Many IMTs do not actively monitor interest rates.
Every public admin I meet seems to worry about this problem. Every lender wants to do more. There needs to be a real public-private partnership to solve this problem. We need leaders of public agencies and private lenders to start discussing ways to address this issue now so we can anticipate the next wave of refinancing.
In the housing sector, we can take advantage of recent experiences with mortgage forbearance during the pandemic. As many Americans lost their jobs, they also feared losing their homes because they couldn’t make the monthly payments. Losing your job shouldn’t mean losing your home. Many lenders, including the company I ran at the time, offered forbearance, a mechanism for homeowners to set up a plan to defer payments.
We have gone further. We’ve made it easy for owners to interact with us. We’ve created a single point of contact so that any homeowner who calls can interact with the same representative. Let’s be honest: the process of refinancing is complicated, confusing and expensive. You can ignore lenders who say they’ve “streamlined” the refinance process: The mortgage refinance process is as easy and enjoyable as having a tooth removed without painkillers.
Owners must go through the full process: application; Documentation; subscription, evaluation. Then they have to pay hefty fees for applications and closing costs to refinance. High fees are often a constraint for the IMT segment. This makes the process easier for the owner when they can deal with a single representative.
Second, we inform clients of forbearance and loan modification plans. We emailed and called our customers regularly to let them know about the plans. We worked in tandem with community nonprofits and housing counselors to spread the word.
Lenders should now be proactive in helping the IMT community. Industry leaders and U.S. Department of Housing and Urban Development (HUD) officials could team up to recruit financial counselors and social workers to educate LMI borrowers about refinancing.
We need to find a way to bring financial advisors into LMI neighborhoods to help borrowers understand closing costs and help them get low mortgage rates. Advisors can help families determine if they should refinance and how much they could save if they did. They can also help families determine whether to pay off their credit card debt or use that money to lower their monthly mortgage payments.
Lenders are usually obsessed with helping people buy new homes. That obsession should extend to helping people stay in the homes they buy — especially Americans with less means — by taking advantage of lower rates when the time comes.
Sanjiv Das is a former CEO of Citi Mortgage and Caliber Home Loans.
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2023-06-12 11:48:12
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