Excellent credit and still no refi

Each time I write about consumers having trouble with lenders, I get an e-mail from one reader who attaches a number to it.

Example: "Heavens' Sunday column No. 5,280, Borrower complains about lender."

He then proceeds with his usual lecture about how banks are good and the people I'm writing about somehow deserve what they get, and how I don't understand the financial system.

This fellow, whose name and comments I'll share with you after I get them again, is not alone in his opinion. There are a few other people out there who believe it as well. They're not regulars, though they can be equally venomous.

Contacting me daily, however, are troubled borrowers and those simply perplexed by a system filled with inexplicable obstacles to financial security. I read their e-mails, listen to their phone conversations, and contact their lenders to see if I can exert some pressure for explanations. Then I wait weeks for no answer and write about the more unusual situations.

I don't relish these exercises, but these are stories that need to be told.

Here's one about the hurdles faced by Gary Klocek (No. 5,281), who wrote in response to a recent column about a woman who couldn't get a loan until she assured the lender that she wouldn't be having more children.

"Unfortunately, we could not get far enough into the process to be disrespected," Klocek said.

With interest rates so low, Klocek and his wife, both 60, hoped to re-mortgage their New Hope condo - either refinance at their current loan balance or take some cash out for future expenses and/or investment.

Their current rate is 5.875 percent, and just $225,000 is left on the loan for a house conservatively valued at $1.6 million. If true, he said, that would mean the loan-to-value ratio would be 1:7 or, said another way, "we would have approximately 86 percent equity in the condo."

Klocek asked about cashing out $40,000 in the refi, which would reduce the equity to 83 percent. They have no additional debt, he said; their cars are paid for, their credit cards paid off monthly.

Their credit rating exceeds 800. They also own an Old City condo that has no mortgage. They have in excess of $1 million in cash and mutual funds.

Bottom line: "We cannot get a mortgage," he said, "not even for $1, as one rep told me."

Here's why.

When Klocek left his employer at the end of 2008, he planned to retire. He still does, and figures that with a degree in accounting, "I can also get some form of employment to earn a few bucks to keep busy. The same goes for my wife."

But that "potential" doesn't count, "nor does the fact that . . . we're both 60 and our anticipated Social Security at 62 would be around $2,700 a month enter into the current qualifying requirements from Fannie and Freddie, which have apparently changed their criteria 180 degrees from the days of 'If you're breathing, you qualify.' "

Klocek contacted a local lender that keeps its loans. It was willing to do business, but the interest rate exceeded the one they now have.

Current income generation was key. Their dividend-and-interest income was offset by about $18,000 in tax bills and an $890-a-month condo fee. The Old City unit they own outright also was a minus, since its monthly carrying costs are about $900.

Klocek said he knows someone who owes $470,000 on a house valued at $350,000. The bank is set to restructure the loan so the resulting interest rate will be less than 2 percent.

"Granted, it's a legitimate business decision - certainly the bank doesn't want the house back," he said. "I guess we should have taken out a 90 percent mortgage in 2004 and hoped to be currently underwater."

Their 5.875 percent rate isn't terrible, he said, "but we were astounded that even with a 1:7 loan-to-value and excellent credit, no one dealing with Freddie or Fannie will touch us."

Inquirer real estate writer Alan J. Heavens is the author of "Remodeling on the Money" (Kaplan Publishing). His home improvement column appears Fridays in Home & Design. Contact real estate writer Alan J. Heavens at 215-854-2472 or aheavens@phillynews.com.

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