NO JOB, WHO CARES?
A layoff, then a loan
Refinancing can be a valuable tool for the unexpectedly unemployed
By Thea Singer, Globe Correspondent, 6/7/2003
In March, Craig Smetana, like millions of other homeowners this year, decided to refinance the mortgage on his house, a 2,500-square-foot Cape in Mason, N.H., he bought 14 months ago for $264,000. He was especially eager to reduce his $2,200 monthly payment on a 6.75 percent, 30-year fixed mortgage because he was laid off in August.
Smetana, 34, knew that just when he most needed to refinance, getting a new mortgage with a lower rate would be the hardest. With his gross weekly earnings down from about $1,540 to $682 (of which $512 came from unemployment benefits) and no full-time job on the horizon, he questioned if he'd even qualify for a loan - let alone one with no points and no closing costs.
But for Smetana, a former product manager at a Lexington software company, it was a break he sorely needed, because he had no cash.
With the lowest mortgage interest rates in 45 years and the highest Bay State unemployment rate in nearly nine years, many homeowners are finding themselves in Smetana's position.
''I'd say I've seen an increase [in applications] of about 8 percent to 10 percent over the past year where one one person or another - a husband or a wife - has lost their job,'' said Mark Glynn, president of Asset Mortgage Group Inc. in Natick.
Often, laid-off workers are reluctant to approach mortgage brokers and bankers, sure that lenders won't want to write a new loan for a person without a job. Or they pull their applications midstream when they get the bad news. But it doesn't have to be that way. Lenders have hundreds of mortgage products, and say they can help most people.
''You have to look at each loan as a puzzle,'' said Joseph Cooper, vice president of Monument Mortgage Co. in Lexington. ''Sometimes it works very easily. Other times you have to sort of shift the pieces around a little bit to get them to work.''
Smetana decided to try his current lender, Chase Home Finance, in Edison, N.J. He figured that with a payment history, fewer documents to pull, and a drive-by as opposed to a drop-in appraisal, the process would be simpler and closing costs would be lower. He was right. Last month, he closed on his new loan, at 6.25 percent. ''It was a quick, easy process, and is saving me $100 a month,'' Smetana said.
Just familiarizing yourself with current lending practices can open doors.
The use of software programs as opposed to manual assessments to determine loan eligibility, a practice that gained steam in the late 1990s, means that most approvals are based on a statistical risk analysis, rather than on the old rigid parameters where, say, a payment could not exceed 28 percent of a borrower's monthly gross income. The new technique allows a lender to assess overall risk, rather than focus on debt-to-income and other ratios.
''If you've got a reasonable credit history ... and if you've got some money in the bank, if you've got decent property, there's a lot more flexibility on the income,'' said John Brodrick, chairman of the Massachusetts Mortgage Association.
In addition, some lenders have programs that can be of particular benefit to unemployed homeowners.
Brookline Bank, with headquarters in Brookline Village, allows customers to do what origination manager Thomas McBreen calls a ''buy down'' of the loans in its own portfolio. All are adjustable-rate mortgages, or ARMs. For a $500 fee, which can be rolled into the loan, the bank amends the note to a lower rate. ''We don't give them the best rate, but we give them better than what they have,'' McBreen said.
Applying for an ARM directly is another way to go when income is an issue, because ARM rates are typically lower than fixed ones, allowing borrowers with limited resources to qualify for bigger amounts, but with lower monthly payments. ARMs can change as frequently as every six months, but the most popular have rates that are fixed for three to seven years and then change every year. The rates are impressive: According to Freddie Mac, the average one-year adjustable rate in May was 4.29 percent nationwide; in March, when Smetana refinanced, it was 3.76 percent.
Another possibility would be a mortgage that doesn't require income verification, although the rates are almost always higher. No-verification loans range from those that ask for a ''stated income'' to those that don't even ask if the borrower is employed.
For Brian Keefe, sales manager at Guaranty Residential Lending in Newton, the ''stated income'' loans he processes receive high approval ratings about 20 percent of the time if no additional cash is being taken out.
''Typically, in no-income-verification lending, all they look at is how good your credit is and how much money you're putting down,'' Cooper said. ''The rates are going to be worse, but surprisingly, on some programs they're not that much worse.''
This story ran on page D10 of the Boston Globe on 6/7/2003.
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