Don't be surprised if your friendly lender, the one who invites you to sit down and apply for a mortgage, ushers you politely out the door empty-handed after you've chatted a bit.
The sudden chill isn't personal. The Mortgage Bankers Association, or MBA, in Washington, D.C., estimates that about half of all mortgage applicants are now being turned down, says MBA spokeswoman Carolyn Kemp. The acceptance rate on mortgage applications suffered a 10 percentage-point drop, from 63 percent in the first half of 2007 to 53 percent in the first half of last year, according to mortgage data tracked semi-annually by the association.
Instead of yielding to shame or anger over the rejection, today's consumers who are intent on buying or refinancing should adopt a pragmatic stance, since clear-eyed determination may eventually land them a loan.
Here's how:
1. Get a read on the reason: If you've submitted a formal application, federal law dictates that you're entitled to a formal rejection.
Expect an "adverse action" notice, spelling out the reasons for turning you down, which these days is likely to state that the loan amount you're seeking is too large compared to the current appraised value of your home, says Joe Theisen, president of the Wisconsin Mortgage Professionals Association.
If it's not your home's value that's the issue, it may be your personal credentials, such as your creditworthiness, work history or debt load.
When credit is the issue, an adverse-action notice is required, naming the credit reporting agency that provided the data on which the lender based its decision, according to Federal Trade Commission rules. You're also entitled to a free credit report; see the FTC Web site for more information.
In addition, a lender may pull a credit score, and tell you what you're likely eligible for, says Marc Savitt, president of the National Association of Mortgage Brokers.
2. Find a fix: Different loans at varying rates may be available, depending on how risky a lender thinks a particular mortgage will be. If you don't qualify at 5.5 percent, for instance, you may be able to get the nod for a loan at 6 percent or 6.5 percent.
However, many borrowers, especially those who are refinancing, need a certain rate to reach the monthly payment they want. Not only are rates higher for risky loans, but there are now upfront "point" charges dictated by Fannie Mae and Freddie Mac, the two big mortgage guarantors currently under government control, Savitt says.
To get a good rate, some borrowers may be able to make changes -- like lowering the amount of the loan they seek. To read more on the subject, see the Bankrate feature, "Beating 3 big refinancing roadblocks."
When a borrower isn't far from the qualifying mark, he may be able to reapply and be approved relatively quickly. For instance, if you're within reach of a 740 credit score, which is usually required for the best rate, you might pay down a balance on a credit card, Theisen says.
3. Seek out other opinions: Not every lending firm adheres strictly to the same playbook, and one lender may approve what another rejects, Savitt says.
A local "community bank," meaning a smaller, hometown institution, may be more flexible, contends Diane Scriveri, chief lending officer at Bogota Savings Bank in Teaneck, N.J.
"Because we're local, we may know home values better. We still use independent appraisals of course, but we may look at comparable (home values) differently because we know what's really happening in different neighborhoods," she says.
Credit unions, which only offer loans to consumers who qualify for credit union membership, may also be more forgiving, says Tony Emerson, president of the Credit Union League of Connecticut.
"It would be foolhardy to suggest that in every case, you can go to a credit union and get a loan," Emerson says.
Still, he says, some credit unions may judge loan eligibility based upon the unique relationship they have with their members.
4. Give it another try: The Mortgage Bankers Association is predicting that 30-year fixed rates will hover near the 5 percent range through 2009. So if predictions hold and interest rates stay relatively low, you should have time to try again.
Fortunately, a rejection shouldn't bring down your credit score, says Craig Watts, public relations director for Fair Isaac Corp.
Making a formal application and then reapplying more than a month later could lower your score, but only by about 5 points.
Mortgage rates tumbled one week after soaring.
The average 30-year fixed-rate plunged 36 basis points, to 5.34 percent. A basis point is one-hundredth of a percentage point.
This week's average 15-year fixed -- a popular option for refinancing -- slumped 28 basis points, to 5.03 percent.
The average jumbo 30-year fixed dipped 14 basis points, to 6.98 percent.
Adjustable-rate mortgages also sank this week. The one-year adjustable-rate mortgage fell 6 basis points, to 5.67 percent. The popular 5/1 ARM slid 13 basis points, to 5.37 percent.
(Distributed by Scripps Howard News Service. Reach Marilyn Kennedy Melia at editors(at)bankrate.com)
REAL ESTATE WATCHMust credit bankrate.com
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