A poll of 1,744 brokers was conducted during the last week of August by Washington-based research Campbell Communications, revealing that sub-prime borrowers had trouble refinancing mortgages because loan programs were no longer available. Prime borrowers were impeded by appraisals and high loan-to-value ratios, according to the poll.
Lehman Brothers estimates that about 5 million adjustable-rate mortgages are slated to reset to higher rates in the next 18 months. Additionally, economists caution that the housing slump could deepen if those homeowners are unable to refinance loans under tighter underwriting guidelines and as home values stagnate or fall.
In August, customers were cut off to credit by lenders at a particularly fast rate as many investors stopped buying the debt banks use to finance home loans. Commenting on business in the weeks ahead, 14 percent of brokers said they had no available lender for sub-prime loans at all, said Thomas Popik, the author of the survey and principal of Nashua, New Hampshire-based research firm Geosegment Systems.
"The question is not what home sales are doing now, but what will happen three to four months from now" as the lack of lender funding in August filters down, Popik said. Prime borrowers are so far less affected, he said.
ARMs resetting in the second half of 2007 top $220 billion, with $170 billion sub-prime, Lehman data shows.
Expectations that the resets will add to already high foreclosure rates have fueled a push by lenders to modify existing loans where possible, and President George Bush recently proposed that homeowners facing default would have easier access to Federal Housing Administration loan programs.
Broker customers with sub-prime, or weak, credit faced the most problems, with 64 percent unable to refinance their ARMs in August, the survey said. Half of prime borrowers were turned away from ARM refinancing, it said.