Refinancing? Would Be Nice If it Weren't Impossible

NEW YORK (TheStreet) -- Mortgage rates are at a record low, but try to borrow at the Freddie Mac 30-year fixed-rate mortgage. It would be nice to be able to refinance a mortgage at 3.56%, but as I found out, it's next to impossible to do so.

As I have been saying, a recovery in the housing market is a key to sustaining an economic recovery. When potential home buyers and home owners looking to refinance can't take advantage of these low interest rates, the U.S. economy will remain in the doldrums.

I say that mortgage rates should be even lower. With the yield on the U.S. 10-Year Treasury note at 1.5%, a 30-year fixed-rate mortgage should be no higher than 2.5%.

My son and I bought a new home three years ago from a publicly traded home builder. Since most major builders have a finance arm it was relatively simple to get a reasonable 30-year fixed rate mortgage rate. Our mortgage rate was 4.5% on a FHA loan, which I thought was a steal with the yield on the 10-Year U.S. Treasury at about 3.00%.

Even though we put 20% down for this mortgage they needed us to buy the FHA insurance to close the loan. This added $89.47 to every monthly payment. We also set up the mortgage to place in escrow all taxes and insurance costs. We were the ideal home buyers.

On June 1, 2012 with the 10-year yield at a neat 1.5%, the Freddie Mac 30-year mortgage was pegged at 3.67%. I tried to refinance. Since our mortgage servicer is one of the four "too big to fail" banks I thought we could get a fair deal.

Not so fast. They told us that we qualified for the FHA Streamline Financing Program, but under this program our new mortgage rate would be 4.00% based upon the Ginnie Mae securitization program, as our mortgage was purchased by Ginnie Mae. This prevented us from getting the posted Freddie Mac rate at 3.67%. Adding to the frustration they told me that the FHA guarantee rate would rise from $89.47 per month to $214.90. This plus a $2,500 closing fee queered the deal.

I asked the mortgage banker at this big bank how to eliminate the FHA guarantee. The banker told me that I could not for another 24 months. At 60 months, I could eliminate the FHA guarantee and its cost, if the loan balance was 78% of the outstanding mortgage.