This Makes No Sense

I have two friends who are both trying to refinance their homes.

Their situations are drastically different. One couple is young, early 30s with a very high mortgage, close to $6,000 a month. It's some "exotic" loan. They tried to refinance and get a 30 year fixed, but were told they could not because they do not meet the income qualifications.

So, they got their first mortgage, which is just pure awful, and now they are attempting to refinance so they can lower their payments and stay in their home. But because they don't earn "enough" they cannot refinance and will probably lose their home.

A Catch 22, no?

The second situation involves my father in law. He is retired, and simply wants to reduce his mortgage payment. He is locked into a 30-year fixed already, but at over 6%. He tried to refinance when his bank was near 5%. This would have reduced his monthly payment by $300 or so. But, because he is retired and without an income, they won't let him. They told him that if he drew out of his 401k regularly, that they could count this as an income and give him the mortgage. But he doesn't need or want to draw from his 401k right now... he has the money just sitting there, but because he's not drawing on it, they won't give him the new mortgage.

Meanwhile, my high end real-estate friend tells me of people who owe a couple million on residences that aren't close to that value anymore and who are cutting deals with banks to lower their rate. Why? Because the banks don't want to foreclose on such ridiculously overvalued properties.

These banks need to burn.