ROBERT SIEGEL, host:
From NPR News, this is All Things Considered. I'm Robert Siegel.
MELISSA BLOCK, host:
And I'm Melissa Block. Mortgage rates are the lowest they've been in a generation, even the indexes behind many adjustable-rate mortgages are way down. For potential buyers and homeowners who can refinance, this is welcome news. But for owners in the biggest trouble, great rates aren't enough to solve their problems, as NPR's Tamara Keith reports.
TAMARA KEITH: In recent weeks, mortgage applications have risen sharply, and the bulk of those applications came from people refinancing their loans. Interest rates are right around five percent, and for some, getting a new cheaper mortgage will mean a savings of hundreds of dollars a month. It's prime time to refinance if you can, says Guy Cecala, publisher of Inside Mortgage Finance.
Mr. GUY CECALA (Publisher, Inside Mortgage Finance): Generally, the people who are going to find it easiest to refinance are the ones with equity in their house, good credit profile, and not the majority of borrowers out there. Certainly, it's not going to do much to help the borrowers who are facing foreclosure.
KEITH: And these low interest rates aren't going to do anything for the 18 percent of homeowners who are now under water on their loans. According to data from First American Corelogic, as of November, 7.6 million households owed more than their homes were worth.
Mr. LENARD DARSEY(ph): Our house was worth $246,000 at one time, and it's $172,000 now.
KEITH: Lenard Darsey lives in Arvada, Colorado with his wife and teenage daughter. About three years ago, they were in a tough spot and they refinanced their home to pull a little equity out and pay some bills.
Mr. DARSEY: I asked for a fixed rate-loan and was told I couldn't and - said don't worry about it, in a couple of years you'll be able to refinance. Well, we all know now that that isn't true.
KEITH: Now Darsey is stuck in an adjustable-rate mortgage paying nine percent interest. He and his wife have good jobs and good credit scores, and all they can do is look longingly at five percent interest rates on 30-year fixed mortgages. No one will give them a loan because they owe $50,000 more than their home is worth.
Mr. DARSEY: I am on the Titanic watching it sink. I don't even have a life boat. I'm with the band. One last time, guys.
KEITH: There's a small consolation for Darsey and others in his position. It's possible his monthly payment will come down a bit because the interest rates that most adjustable loans are indexed to are falling. Again, Guy Cecala.
Mr. CECALA: Prime rates low, all the indexes on mortgages are low. They're certainly as low as you could expect them.
KEITH: Michael Devlin is a mortgage broker with George Mason Mortgage. His own home is financed with an adjustable mortgage tied to rate known as the LIBOR.
Mr. MICHAEL DEVLIN (Mortgage Broker, George Mason Mortgage): Right now if my mortgage recasts, my interest rate will drop. The low - lower interest rates in the T-bills, the LIBORs, those are all going to have a positive effect as long as they stay down low.
KEITH: Devlin's interest rate has already dropped once. But for some people, falling interest rates won't be enough to save their homes. During the boom years, hundreds of thousands of people got subprime loans that had teaser interest rates. Those lower rates were locked in for two, three, five years. Some borrowers didn't even have to pay down their principal during those years, but when the introductory period ends, payment shoot up. Paul Lenard with The Center for Responsible Lending says lower interest rates aren't going to be enough to offset what happens when teaser rates end.
Mr. PAUL LENARD (The Center For Responsible Lending): The lower interest rates are going to provide a small amount of relief for a small number of borrowers but it's not going to address the imminent wave of foreclosures that's still coming down the road.
KEITH: So when it comes to falling interest rates, it seems the people in the biggest jam may be out luck. Tamara Keith, NPR News, Washington. Transcript provided by NPR, Copyright NPR.
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