Saturday, November 13, 2010

Are you refinancing?...

Even with record low mortgage rates, refi's aren't flying out the door at banks and mortgage companies.
Mortgage rates dropped to another record low this week following the Fed's move to pump hundreds of billions of dollars into the U.S. economy. Though officials hope that buying Treasuries with newly-printed money will give the slow-growing economy a big boost, the move likely won't give today's homeowners much relief.
Now is one of the cheapest times in decades to finance a home, but few are actually locking in record low mortgage rates. This isn't just because many don't qualify for refinancing as home prices plummet and banks continue to enforce tighter lending standards.
It's also because many owners who locked in relatively low rates between 2003 and 2005 don't think it's worth refinancing, according to a U.S. Federal Reserve study of the mortgage market released in September. This is a factor that has largely been overlooked. [More]
This got me to wondering about farmland refinancing.  Even though it has been widely advised by ag business gurus, I can't find any good stats (outside the Farm Credit System) to show farmers are leaping to lock in low long-term rates.  Anecdotal data from around here seems like they are: it takes several weeks to get a title policy done because they are backed up with refi's.

But if the number is smaller than rates would seem to suggest (i.e. the savings are significantly greater than the costs of refinancing), I think I can guess some reasons holding guys back.
  • Loan-office aversion.  On the whole we would just as soon not borrow any money, and even if we have a good relationship with our lender(s), it is not a transaction we enjoy.  There may need to be a powerful incentive to get us to initiate the always emotionally fraught moments in the bank.
  • Lender reluctance.  You can sure bet your lender isn't going to trade a higher rate mortgage for a much lower one spontaneously.  Hence the trigger is tripped only when faced with the loss of the mortgage by you going somewhere else for your money. But it is important to remember bankers face the same tricky calculation when interest rates are rising.
  • Personal ties. A good lender becomes a close adviser and often one of your best friends.  Even mildly adversarial conversations ("I've had an offer from another lender") seem to put a real chill in the air.
  • Ignorance.  Many farmers may not know where interest rates (especially long term) are as they don't read much or talk to friends about money. And even if they do, they may not be able to calculate the savings or analyze the possibilities with any confidence.  Maybe they've always left it up to their banker. 
  • Pure laziness.  Lookit, prices are good.  I'm making my payments.  Why stir up trouble or make more paperwork for myself? Besides not all my bank experiences have been happy ones.
  • Still not low enough.  I'll  bet there are a few holding out for 2%/30-year fixed mortgages.
  • Only X years left anyway.  [Where X<5] I'll bet some guys my age can see the end of the tunnel and the trade-off may be worth it, but inertia is pretty powerful.
Doubtless there are many other reasons, but if American homeowners are slow to take advantage of lower rates, I really wonder if some farmers aren't also missing some opportunities.


Anonymous said...

Re: lender reluctance--Actually my Farm Credit Service loan officer has twice called us to suggest that we refinance with a lower rate--which has made a significant difference in our payments and cash flow. We're VERY happy with the service we get from them. They really seem to care how well we're getting along.

Chuck said...

Also re: lender reluctance. Our local Farm Credit office called spontaneously recently and said "We can refinance you for 4%."

They definitely watch out for us and emphasize good service.

Anonymous said...

too much paper work and regulation and BS charges

Anonymous said...

Why isn't the title policy insurance transferable to the next lender?

Anonymous said...

Title insurance is for a specific amount tied to a specific mortgage. As a lender I required title insurance for my loan to assure that if there is a title issue during the repayment period of my loan, the title company is responsible for the surprise, not my client. FSA is not permitted to refinance existing real estate debt by statute. Lender client relationship is a big factor, IMHO, Doing something today that will, in the short term improve my cash flow, that may put future credit needs at risk could well prove to be short sighted. For many of the ag lenders in this area, they are not looking for new customers as much as they are looking to continue to help existing customers with a proven track record.