What’s a “Burned Out” Borrower

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Another new term in the world of home financing opportunities. No, not someone who lost a home to a fire, but rather someone who is just plain sick and tired of trying to refinance their home and reduce their debts. Do they now represent the potential for a new wave of refinances in 2016? I think so. (Burnouts)

Freddie Mac reported in its most recent Insights & Outlook Report that there are over $655 billion (that’s with a “b”) in outstanding 30 year fixed rate MBSs with interest rates above 4%. That’s a whole lotta loans. For one reason or another, the borrowers on many of these loans have just about given up on trying to refinance. Why?

Could be credit problems, property value, or just a lack of knowledge of what is now available in financing options. Who knows, maybe it’s just too much work and effort.

However, with property values stabilized in most areas many of these homeowners may find they now have more than sufficient equity to obtain at least a rate and term refinance to lower their housing cost. They may now have the collateral but do they have the credit and capability to qualify for a loan? Only one way to find out…

Some may be a position to take cash out to consolidate debts and reduce their overall monthly obligations. This may help to put them in a better position to become a move up buyer sooner down the road. Maybe others can use the money to pay off some of their student loan debt, or that of their children, who then may be able to afford to move out on their own and become another potential homebuyer.

Once again, an opportunity exists for lenders in the world of home loan refinancing. According to Freddie, there’s a net potential of about $122 billion in conforming 30-year loans with rates above 4%. This does not include about $390 billion of “burned out” borrowers. It looks as though the reports of the death of refi’s may have been greatly exaggerated.

Maybe if lenders can re-kindle the flame, and make it a little easier to apply and get a loan, these burned out borrowers may start thinking about refinancing again.

The game has changed. Play different.

About the Author

Michael Vitali

Michael L. Vitali – Independent Consultant to the Mortgage Industry Mike Vitali is an independent consultant to the mortgage industry on matters concerning compliance and mortgage lending. He most recently served as the Senior Vice President and Chief Compliance Officer for LoanLogics, monitoring regulatory developments and their practical implications for the mortgage lending industry. His duties included research, interpretation, and analysis of existing and proposed legislation related to the industry in support of recommendations for policy and/or procedure changes to maintain continued quality and compliance with all applicable laws, rules and regulations, investor requirements, and standard mortgage practices. In his more than 40 years in the mortgage industry, in senior level management, he has gained experience in all areas of mortgage lending, risk management, and compliance. Mike is a past President of the MBA of Greater Philadelphia, is a charter member and was the second Chairman of the MBA of Pennsylvania, and a past board member and Legislative Chair of both associations. He is a recipient of the 1998 Mortgage Banker of the Year Award from the MBA of Greater Philadelphia, and the 2003 Chairman's Award from the MBA of PA, and currently serves on several compliance related task forces for MBA.