Mortgage interest rates dropped to record lows last week, hitting rates not seen since the 1970s. But brokers say few of the many South Florida homeowners rushing to take advantage and refinance their loans will be able to qualify.

The region’s high levels of unemployment and depressed property values have made it tougher for many borrowers, and lenders are demanding better credit histories and proof of income before they’ll refinance a loan. Only about half of those in the region seeking to refinance may actually qualify for a loan — far lower than before the housing market bust, South Florida mortgage brokers say.

Still, for many borrowers who don’t face those problems, the rush to refinance is on.

“There’s been a lot of activity,” said Claudine Claus, owner of Home Financing Center, which operates in Palm Beach, Broward and Miami-Dade Counties. She says the part of her business devoted to refinancing mortgages has quadrupled in the past 30 days, compared with the 30 days before that.

“Rates have dropped,” she said. “A whole new group of people are interested in refinancing even though every loan can’t be refinanced.”

The people for whom refinancing makes the most sense are those who didn’t get caught in the housing bubble and bust.

“There are a lot of people who purchased homes before [that cycle], who bought from 2002 to the 2005 peak in market,” said Andre Brooks, who is in charge of the mortgage business in Florida for Wells Fargo Home Mortgage. “They have interest rates that are higher than the current market levels and they may not be experiencing negative equity.” Negative equity is the term for owing more on a mortgage than a home is worth.

Applications for refinancing are up in Florida and nationwide, according to online lender Lending Tree.

Nationwide, four out of five conventional loan applications and more than half of Federal Housing Administration and Veterans Administration loan applications were for refinances in the last month, according to Freddie Mac Economist Frank Nothaft. The Mortgage Bankers Association says its weekly index of applications to refinance nationwide for the week ended July 16 was at the highest point since mid-May last year.

The rates are truly great. Thursday, the average rate on a 30-year, fixed-rate mortgage was a record-low 4.56 percent, down from 5.2 percent the year before, according to Freddie Mac, a federal government-backed mortgage provider. Previously, the all-time low was 4.57 percent. Freddie Mac has been releasing the weekly mortgage rates for 39 years.

According to Bankrate.com, the average mortgage interest rate at the end of 2008 was 6.33 percent. A borrower who had a $200,000 loan then could save $200 a month in payments if he or she refinanced today.

To see if refinancing makes sense, borrowers should divide the fees they pay to refinance their loans by the monthly amount that they’ll save. That will tell them how many months they would have to live in the home to recoup the expense of refinancing.

Dan Longman, president of Priority Lending Corp. in Cooper City, said lenders want borrowers to have a 740 credit score or higher to qualify for the lowest-rate mortgages loans. Two years ago, he says a 680 score would suffice. Lenders also now require full documentation of a borrower’s income, unlike during the housing boom when “no documentation” loans were often called “liar loans.” And some are requiring borrowers to re-verify their income in the time between the application and final approval.

Indeed, anyone who is out of work will have a difficult time qualifying because they don’t have sufficient income to make their loan payments. With unemployment ranging from 10.1 percent to 12.8 percent in Broward, Palm Beach, Miami-Dade and Orange Counties, that eliminates a huge swath of Floridians from the possibility of refinancing mortgages.

The other big obstacle is depressed home values. Because property values have fallen so far in the four-year downturn in the housing market, close to half of Fort Lauderdale’s borrowers owe more on their homes than the property is now worth, according to CoreLogic, a real estate analytics firm. They probably won’t qualify to refinance, either, because private lenders will not refinance a loan for more than the value of a home. The proportion of “underwater” loans are similar throughout South Florida.

There is one option for borrowers who are underwater to refinance. If the loan is owned by Fannie Mae, a government-sponsored mortgage funding corporation, it can be refinanced if the amount is 125 percent of the home’s value. To find out if a loan is owned by Fannie Mae, use the “loan lookup” tool at www. Fanniemae.com.

Given the hurdles, “it’s a real shame that all of these people can’t take advantage of the rates,” said Lane Barron, a senior mortgage consultant at Element Funding in Sunrise. His office this month has almost twice as many applications for new loans than in January, but none of them are for refinancings. Brokers say homeowners who know they are seriously underwater on their mortgages aren’t even bothering to apply. But tougher standards are affecting even some folks with sterling credit seeking new mortgages. David Kosowski, of Miami, had an enviable credit score of more than 800 and a steady job. But he says he could not get a lender to give him a loan because part of his income depends upon the profits of his company. Profits had fallen during the recession. He instead paid cash to close on his home in June.

“Now I’m hoping to refinance,” he said.

Time may be on his side. Concerns about the economy’s recovery are the reason why rates have declined. Economists think they may stay there as the uncertainty continues.

“Mortgage rates are also expected to remain low heading into 2011,” said Sam Khater, senior economist at CoreLogic, a real estate analytics firm. But he warned that the outlook could change if inflation, which is pretty much absent today, comes roaring back.

Harriet Johnson Brackey

Whether you’re applying for a job or looking for love, rejection is painful, particularly when you aren’t given a reason for the rebuff. “It’s not you, it’s me” doesn’t count.

But soon, when a lender rejects your request for a loan, it will be required to tell you why. The financial reform bill President Obama is expected to sign this week requires lenders to give customers who have been turned down for a loan a copy of the credit score used to make that decision. Lenders will also be required to give you a free credit score if you’re offered a loan with a higher interest rate than the rate offered to borrowers with excellent credit.

The requirement won’t be limited to lenders. You’ll be entitled to receive a copy of your credit score any time it results in an “adverse action” against you, which could include everything from a higher auto insurance premium to a landlord’s refusal to rent you an apartment.

The law doesn’t require credit bureaus to give you a copy of your credit score when you order your free credit reports from www.annualcreditreport.com. That will disappoint a lot of consumers who want to know where they stand, even if they’re not applying for a loan.

Nonetheless, the new requirement will benefit consumers, says John Ulzheimer, director of consumer education for Credit.com.

FREE REPORT: You can and should check your credit profile for free
NOT-SO-FREE REPORT: Rule helps consumers avoid free credit reports that aren’t

The problem with mandating free credit scores for everyone is that lenders and credit bureaus use lots of different scores to evaluate borrowers, Ulzheimer says.

While the FICO score is the most widely used score, some lenders also use another score model known as the VantageScore. In addition, the credit bureaus have their own proprietary scores, which some sell to consumers.

The law ensures that when you’re turned down for a loan, or suffer an adverse action, you’ll receive the exact score that was used to make that decision, Ulzheimer says.

Once lenders start providing scores, many consumers may be surprised by what they see, Ulzheimer predicts.

“A lot of people make the assumption that as long as they’re making minimum payments (on credit cards) they have good credit,” he says. “I think this is going to remove any shadow of a doubt as far as where they stand creditwise.”

New data from FICO show that in April, 25.5% of consumers — more than 43 million people — had FICO scores of 599 or lower. That’s up from 24.1% in April 2008.

Consumers with sub-600 scores typically have serious blemishes on their credit records, such as foreclosure, bankruptcy or multiple payments that were delinquent by more than 90 days. Once your score falls below 600, it’s nearly impossible to get a loan, and rehabilitating your credit could take years, Ulzheimer says.

Chapter 13 bankruptcy, in which you agree to repay your debts over three to five years, stays on your credit record for seven years. Chapter 7, which eliminates most debts, stays on your credit report for 10 years. Foreclosure remains on your report for seven years.

That doesn’t mean that you’ll be barred from obtaining credit until these items are removed from your credit report, says Craig Watts, spokesman for FICO. Even consumers who have filed for bankruptcy can restore their credit score into the 600s in three or four years by paying their bills on time and maintaining low credit card balances, he says.

“You don’t have a big red B on your chest,” he adds. “You can outgrow the bankruptcy as long as you establish a credit habit that lenders and the credit score model can see.”

If your score has been depressed because of late payments, you can repair the damage in a year or two by scrupulously paying your bills on time, Watts says. The credit score model gives more weight to recent history, so the impact of delinquencies diminishes over time.

The FICO analysis also shows that 11.9% of consumers have scores of 650 to 699, down slightly from April 2008. Consumers in that group can still get credit — although at less favorable rates than borrowers with higher scores — but they’re in the danger zone, Ulzheimer says.

If you’re in that range, it’s important to take steps to improve your score so you’ll have access to credit in an emergency, he says. For most consumers, that means getting credit card debt under control.

“If you’re at 650 or 680, you’re in the frying pan, but you’re not in the fire,” Ulzheimer says. “But you’re one incident or event away from being in the fire.”

Question. I am 62 and retired. I have an American Express gold card and an American Express Hilton branded card. I would like to cancel the gold card and retain the Hilton card because the gold card costs $110 per year and we rarely use it anymore. I’ve had the gold card since 1971 and the Hilton card is newer, since 1988. My credit scores are 765 to 800 and we have no credit card debt or mortgage, just an $11,000 car loan and a $28,000 home improvement loan. How much of a hit do you think I will I take if I cancel the gold card?

Answer. For you, the hit should be minor and temporary. Still, there are considerations to make before you cancel.

Ask yourself if you’ll be applying for any major loans, such as a mortgage or car loan, in the near future.

“You might want to keep the card until that credit is obtained to get the best possible rate of interest on the loan,” said Jody D’Agostini, a certified financial planner with AXA Advisors/RICH Planning Group in Morristown.

Take out any loans first because canceling your oldest card will have an effect on your length of credit history, which makes up about 15 percent of your credit score. Keeping the oldest card is good for that part of your score, but given the rest of your credit history, it sounds like you’d make up any decline rather quickly.

“The nick on your credit should be minimal, and as long as you continue to pay your bills in a timely fashion, then you should have little cause for concern,” she said.

If there was no annual fee, D’Agostini said she’d recommend sticking the card in a drawer and not using it, though sometimes inactivity will cause the lender to close the line of credit.

Although you’d be closing your oldest card, you still have the Hilton card, which goes back to 1988 — not bad and certainly proof of a long credit history.

Something else to consider before closing the card is your credit utilization ratio, which compares how much credit you have available and how much you’re actually using, said Michael Gibney, a certified financial planner with Highland Financial Advisors in Riverdale.

Gibney said closing the card will lower your available credit, and together with your outstanding auto and home improvement loans, your credit utilization will move higher — and higher in general is bad for your credit score.

This again, given your overall solid credit history, will be a temporary hit.

“I agree with canceling the gold card because of the annual fee,” Gibney said. “I find it hard to justify an annual fee on a credit card because there are many offerings available with no annual fee.”