Applications for mortgage refinancing have been dwindling as rates have risen in recent months. But if you haven't been able to refinance yet, those higher rates might represent an opportunity.

Why? Because as refinance demand falls, lenders are scrambling harder to drum up whatever business remains. That means that if you're a marginal candidate for refinancing who was turned down before, they may be willing to take another look at you.

When mortgage rates were at rock bottom, lenders didn't have to worry about finding business. Borrowers were beating down their doors. With their hands full, they could afford to be choosy about who they approved.

Near-misses could now be hits

Compared to before the crash, mortgage standards are still pretty tight. But they are gradually easing, according to recent figures from the Mortgage Bankers Association. And mortgage rates are still exceptionally low by historic standards, running well below their pre-2009 levels.

The official guidelines for mortgages backed by Fannie Mae and Freddie Mac haven't gotten any easier, but where potential borrowers might be able to catch a break is on what are known as "overlays," the specific guidelines each lender has for the loans it will approve, in addition to the Fannie Mae or Freddie Mac standards.

With the pool of refinance borrowers drying up, some lenders appear to be reconsidering some of their overlay requirements, opening the door to somewhat less-qualified borrowers than they would have considered just a few months ago.

Trying again with HARP

They may also be more willing to take on loans that require more effort on their part, such as self-employed borrowers, or those who are seeking to refinance under HARP, the federal Home Affordable Refinance Program.

With HARP, you've got borrowers who are marginal to begin with - the program is limited to homeowners with little or negative equity on their mortgages - and with special requirements that mean more work for lenders. Mortgages that have a second lien, such as a piggyback mortgage or home equity loan, have been particularly difficult to refinance, as have those with private mortgage insurance (PMI).

So if you've been turned down for a HARP refi in the past, it might be worth taking another crack at it, since lenders are actively soliciting HARP refinances these days and may be willing to do some extra work to push the loan through.

Some things haven't changed, though. HARP refinances are still restricted to mortgages backed by Fannie Mae or Freddie Mac only, which excludes a large number of mortgages written during the housing bubble years. There's been talk about expanding the program to non-Fannie/Freddie mortgages, but it's not clear when that might happen.

Has your credit picture improved?

If you've previously been turned down for refinancing, it's also worth keeping in mind that your credit picture may have changed since the last time you applied. Home values are up more than 10 percent over the past year, according to various reports, with larger gains in many parts of the country. This means improved home equity for borrowers, making it easier to get approved for refinancing.

If you were turned down for bad credit, remember that credit scores can improve. If the last time you applied to refinance was more than a year ago, it might be worth checking into it again. Minor credit flaws, such as an occasional late payment, can fade fairly quickly, although more serious problems, such as a foreclosure, bankruptcy or a bill more than 90 days overdue (serious delinquency) will stay with you for several years.

Published on February 9, 2011