It is unusual to have a mortgage refinancing boom in the middle of a foreclosure crisis. In the 1930s, the last time we had a foreclosure crisis comparable to this one, lenders were so spooked that there was almost no refinancing. That changed only after the 1933 creation of the Home Owners Loan Corp., a New Deal agency that refinanced many borrowers at the government's risk.
The refinancing boom today is also backed by government. With few exceptions, refinanced loans are being sold to Fannie Mae or Freddie Mac, or insured by the Federal Housing Administration. The requirements of those agencies largely dictate who can and cannot profit from refinancing.
Deciding whether to refinance involves a comparison of what a borrower has with what he can get. If he is paying 5 percent and can refinance at 4.5 percent and no fees, he will profit. If he is paying 7 percent but the best he can get in the current market is 7.5 percent, he cannot.
Borrowers with fixed-rate mortgages usually know what they have, but borrowers with adjustable-rate mortgages often don't. I have received letters from borrowers in a state of high anxiety because their ARM faced a rate reset and they felt they had to refinance before that happened.
In some such cases, a close look revealed that their rate was probably going to drop sharply, making it unnecessary to refinance quickly -- if ever. read more
A secured loan is a loan in which the borrower pledges some asset (e.g. a car or property) as collateral for the loan, which then becomes a secured debt owed to the creditor who gives the loan. A mortgage loan is a secured loan in which the collateral is property, such as a home.
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