Are you trapped in the jam at the mortgage window? Tens of thousands of borrowers, buying a new house or refinancing an old one, are grinding their teeth in frustration as time passes and their mortgage loan has not yet been approved.
For many, the delay means losing a 9.5 percent fixed-rate mortgage commitment that had been locked in for 60 days. Interest rates are higher now than they were in May, and you may not qualify for a loan at 10.5 or 11 percent.
For other borrowers, time is running out on the deal they made to buy a house. If they can't get a loan in time, the seller may be free to accept another -- and higher -- offer.
Behind the logjam lies an unprecedented number of mortgage applications that simply broke the system's back.
Appraisals are the biggest bottleneck. There aren't enough appraisers to evaluate all the houses in a timely fashion. But there are also paperwork pileups at banks, at title-insurance companies and at the Federal Housing Administration. Loans that normally take no more than 60 days to close are now taking 90 days or more.
Is there any way to save your deal if time runs out on your low, fixed rate? Bankers make the following suggestions:
Wait and see what happens. Interest rates rose in April and May but fell again in June. Last week, the Federal Reserve Board cut the discount rate for loans to banks, which should help lower the general level of rates even more. The national average on a 30-year fixed mortgage is now 10.6 percent, down from 11 percent in May. If that trend continues, rates might be close to single digits by the time your loan finally closes.
Take an adjustable-rate mortgage (ARM), which still costs in the 9 percent range. A good ARM includes a cap, allowing its rate to rise by no more than 2 percentage points a year (and 5 points over the life of the loan). So even if interest rates leap, an adjustable loan probably will cost you less than today's fixed-rate loan for the first couple of years.
Furthermore, there's an excellent chance that interest rates will not leap, because the economy is much more sluggish than expected. If rates rise modestly later this year, then sink again in the next recession, an ARM might turn out to be a "best buy" for several years to come.
If you already have an ARM and were planning to refinance at a low fixed rate, forget it for a while. You'll get another chance when interest rates come down again.
Warn your real estate broker if you're buying a house and fear that the loan won't be approved in time. He or she will talk to the seller about extending the term of the contract. Most sellers are willing to wait a little longer rather than go to the trouble of putting their houses back on the market. But if they had a backup offer at a higher price, you run the risk of losing the house.
If such a possibility seems likely, pay a personal visit to the bank, to try to move your loan to the top of the list. The bank doesn't want to lose the mortgage any more than you want to lose the house.
Another possibility is to take a bridge loan. You can use the money to finance the house, then pay it back when your mortgage comes through.
New buyers should put 90-day rather than 60-day limits on their contracts, or provide for renewal clauses if the mortgage is delayed.
When approaching a bank for a loan, don't drag your heels on your share of the paperwork. The faster you produce all the documents needed by the bank, the faster the rest of the work can proceed. When the only delay is the appraisal, you might be able to arrange for it privately.
Sometimes a banker can extend a promised mortgage rate for a few days, after the time runs out. But typically, the lender is raising money for your loan from the secondary mortgage market. When his interest-rate guarantee runs out, so does yours.
The angriest borrowers are those who paid a fee to lock in the loan rate and now face losing both the mortgage and the fee.
Banking regulators in several states are considering whether there is anything they can do about this situation. But so far, they've pretty much confined themselves to making threatening statements about lenders who don't follow through on their guarantees.
Your best best: Push your mortgage along by calling regularly and trying to solve logjams yourself. If you still miss the deadline, the lender should apply any fees that you paid toward the points due on another loan. If you can't afford a higher-rate loan, try to negotiate with the lender for the return of any money you may have paid.