Roadblock to Mortgage Refinancing

Independent filmmaker De Veau Dunn tried to refinance his mortgage last summer to reduce his 6 percent interest rate. He didn’t qualify because he owed more than his home was worth. This spring, Dunn, who lives near San Diego, could proceed thanks to new rules in a federal program to help borrowers like him. He just closed on a new loan at 4 percent, saving $700 a month. “Seven hundred a month times 30 years—that’s a bit of a savings,” he says.

Dunn was lucky. While the Obama administration this year has introduced rules to encourage refinancing, their impact may be limited by banks’ stretched capacity to make loans and their concerns that borrowers are too risky. “The government keeps rolling out these wonderful programs, and it’s sometimes hard to find a bank that will underwrite to the government guidelines,” says Dan Green, loan officer at Waterstone Mortgage in Cincinnati. “There’s a disconnect between how the program is being touted and what a homeowner can actually receive.”