In his State of the Union Address last month, President Obama spoke at length of the interrelation between the housing crisis and the economic crisis.
And among the discussion of new and future regulations aimed at improving things, he recommended that homeowners consider refinancing their mortgages.
“And that’s why I’m sending this Congress a plan that gives every responsible homeowner the chance to save about $3,000 a year on their mortgage, by refinancing at historically low [interest] rates,” the president said.
“No more red tape,” he said. “No more runaround from the banks.”
Local banks contacted by the Chronicle did confirm the president’s assertion that interest rates are at historic lows.
But they also said interest rates are just one of myriad factors that homeowners and banks large and small must consider on a case-by-case basis for refinanced mortgage loans.
“As pertains to the speech itself, it was long on concept and short on detail,” said Michael Bizenov, executive vice president for Sterling National Bank.
Bizenov said refinancing, done by the right borrowers under the right circumstances, can save homeowners money and benefit consumers and the economy.
“Interest rates are probably the lowest they’ve been since probably forever,” he said.
Peter Meyer, marketing president for TD Bank in New York City, also said rates are the lowest he has ever seen for mortgages.
“One would think the obvious answer is to refinance,” Meyer said. “That may be true but there are a lot of factors that fall into place.”
He said prospective borrowers need to decide how long they are planning to remain in their home.
“If you are only going to be in the property for a few years before you sell, your interest might decrease but the increase in fees may mean it makes no sense to do that,” he said.
Bizenov said shortening the term of a loan can lead to substantial savings in some cases. But he and Meyer both said all types of loans may have fees, closing costs and tax implications that a consumer must weigh carefully.
“You have to do your homework,” Meyer said. “Talk to a mortgage professional and do a little bit of research.”
Both Bizenov and Thomas Rudzewick, chief lending officer and a vice president at Maspeth Federal Savings, said some government intervention has proven to hamper consumers who are trying to play by the rules.
“For people who are in default again and again there are some good programs,” Bizenov said.
But he said some of them can actually encourage responsible, conscientious borrowers who might need just a little bit of help to consider defaulting in order to have access to more benefits.
“Some actually encourage people to stop making their payments,” he said. Those programs are horrendous.”
Rudzewick said there was “a strong disconnect” between portions of the president’s speech and the realities of the market, particularly in the wake of new regulations on banks in the last year.
He said small banks generally fared better than their large national and international brethren from the earliest days of the financial crisis.
But he said recent changes have placed small banks under the regulatory purview of Congress’s Office of the Control of Currency.
“Regulators used to judge small banks differently than large ones,” he said. “But when OCC took over, both large and small banks were forced into the same regulations that formerly applied to big banks.”
Then there were Freddie Mac and Fannie Mae, the vernacular names of the two largest mortgage holding entities in the country, which are creatures of Congress.
“Big banks made a lot of money with the ability to to do lending and and sell the loans to Fannie and Freddie,” Rudzewick said. “They underwrote loans knowing they had no skin in the game.”
Meyer and Rudzewick said their banks, by contrast, keep mortgages on their own books or “portfolio” them rather than sell them off to brokers or investors, and thus have more control and flexibility.
But even that may not be enough as financial institutions large and small adapt to last year’s federal Wall Street Reform and Consumer Protection Act.
It is known more commonly as the Dodd-Frank Act for its chief architects, former U.S. Sen. Christopher Dodd (D-Conn.) and Congressman Barney Frank (D-Mass.).
“Dodd-Frank has many good components,” Rudzewick said. “But it was a very knee-jerk reaction and was put in place with too much haste.”
While Obama talked in his speech of eliminating red tape for the benefit of the consumer, Rudzewick said Dodd-Frank is about 2,500 pages long and boasts some 3,000 new laws for the banking and financial industries.
“I don’t know how any member of Congress was able to read all that,” he said. “But it remains on the books.”
He said smaller banks, which did not cause the recession, by and large did well during the downturn, and continued to lend money under the regular combination of federal regulation and internal practices and standards.
“Our [internal] regulations are as rigorous as they have always been,” Rudzewick said. “But when the regulators came in recently they they criticized the way we do business with some loans, though we have not changed our regulations in 47 years,” he said. “Now, with the Dodd-Frank Act, we have to tell a lot of good people who have been doing business with us for years that they don’t qualify for loans.”
And what was the advice regulators had under the new tougher standards?
“They said ‘Make sure the people you lend to have the ability to repay their loans,’” he said.