$3,000 ATM Fee?

Cheap Money Elusive for Many

While rates are falling, borrowers face higher costs every step of the way, from rising fees for mortgage insurance to added costs that drive up the mortgage rate. At the same time, lenders have become more cautious about who they will lend to, as more people lose their jobs, watch their incomes decline and fall behind on their bills.

--"Costs and Tighter Rules Thwart Refinancings"; The New York Times (1/24/09)

The big drop in interest rates -- from over 6% to under 5% -- isn't stimulating the housing market as much as hoped because many would-be borrowers and refinancers don't qualify. Depending on the individual housing market, as many as two-thirds of applicants are denied (in the Twin Cities, the number I've heard is 50%).

Many of the remainder still may not get the best, advertised rates, due to something called "risk-based pricing." Just as some people pay 7% on their credit cards and others pay 22%, mortgage rates now vary considerably depending on your risk profile.

To add insult to injury, lenders are now imposing additional fees on weaker credit risks to compensate for their projected higher risk of default. (Such an approach may make sense now, but it smacks of "gotcha" to millions of borrowers who faced no such hurdles when they signed up for their original loans. On the contrary, lenders pitched low initial "teaser" rates, "option-ARM's" and other sugar-coated loan features.)

The net result is a huge winnowing-out factor for those trying to lower their payments and/or switch out of risky mortgages.

Oh, and forget about "cash-out refinancing" -- using your house literally as an ATM. Even if you have enough equity to do it, the cost is likely to be prohibitive: anywhere from $500 to $3,000 to access $100,000 of your equity.