With everyone a-buzz over lower mortgage rates and the large number of people applying for refinancing their mortgages, it might be time to check in on the unintended consequences.

Mr. Mortgage has a good piece titled Low Mortgage Rates to Spur New Wave of Defaults. His argument is that many of those looking to refinance will be rejected, bringing the housing crisis to full front-row impact to all the prime borrowers out there. Here’s a quote:

[Today] the first thing done after the loan application is taken is to call the appraiser for a comparable sale check to see if the value at which the home owner states the house is worth is on target.

Therein lays the rub.

From early reports since rates fell sharply in early December, 80% of the loan applications are not getting out of the starting gate easily. Loan officers are all saying the same thing ? that appraisals are not coming at value due because ?all of the foreclosures and REO sales have taken the value down?. In the majority of these cases, this kills the loan.

The loan officer then notifies the borrower of the news and they are in disbelief. All home owners think that their home is worth the most on the block and I have been told that this is a tough pill to swallow. This brings the crisis home instantly.

Everyone trying to refinance into lower rates at once should hasten the national reality that the largest portion of the home owner?s net worth has evaporated in the past year. One loan officer I spoke with equated this call to a Doctor notifying a patient that they had a terminal illness.

The other three top reasons that loans are not making it out of the application phaseare because of credit scores coming in too low, interest rates not really being what the borrowers are hearing hyped and Jumbo money is near all-time highs.

It may or may not cause the defaults Mr. Mortgage predicts, but there are usually some unintended consequences that wreak more havoc than anticipated… and this would fit the bill for an unanticipated result of lower mortgage rates.