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February 24, 2009

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Today I closed on a refinance loan and thought I'd share some of the experience with the board. Most here know that for quite a few years I was a mortgage originator...... some of the time with banks some with mortgage companies.

I did the usual local and Internet shopping for rates and found an outfit on the Internet which seemed to be the best combination of rates and costs. We made application on 12/05/08 over the phone.

Our credit scores were in the mid 700s, our front ratio was 18% and back was 27%. The house appraised such that our LTV (loan-to-value) was 75%.

A couple of weeks into the process a friend of Mrs PosFCF introduced her to her mortgage broker who came by for a signature when they were visiting. [That sounds so weird to me, I'll clarify it a bit: the friend is our travel agent and Mrs PosFCF was in her office getting cruise tickets]. Anyway, this broker stated he could give us 4% and 2 points on the 15 year fixed rate mortgage loan we were looking for.

This was a quarter of a percent lower on rate than we had been quoted on the best rate we could find.

Mrs PosFCF got the guy's card and gave it to me. We talked it over and I called him. He sounded legit to me so we went in to talk with him the next day. He gave us a Good Faith Estimate (GFE) but we deferred making application until we talked about some more. We made application the next day but his printer was down so he didn't print the documents at that time.

Meanwhile, we still had the other application working.

Several days goes by and the new broker leaves a message on the machine that he locked our rate at 4.25%. We called and he said that the market was moving against us and he took the action to protect the rate as much as possible. While, when I was a broker I would never have locked a client at a higher rate without discussing it with him first, I thought well, OK it was 4.25% and since he told me he locked that rate at no points, that kind of made up for the 4.25% instead of 4.0%.

Several more days go by and we make it into his office to sign the paperwork. All of a sudden there are 2 points showing up on the GFE and we still have the 4.25% rate. When I draw his attention to the mistake, he says: "Oh no, that's not a mistake, we were always going to charge 2 points, you just didn't have any points to pay to the lender."

Hogwash! I know the business well enough to know what I asked, what was quoted, and what was disclosed on the GFE. So I thanked him for his time, told him to stop all activity and refused to sign anything but the permission to pull the credit report. I hate bait-and-switch operators! And this was so clear-cut a case of it I was surprised the guy was still in business.

So, there are still some shenanigans going on in the mortgage business.

The first loan application ran into a snag. It seems that our Homeowner's Association (HOA) has some kind of lawsuit going on which, if it went against them, would cost them about $70,000. The underwriter wanted proof of the HOA's ability to repay it.

While this may not seem like an unreasonable request, I can assure you that it wouldn't have even showed up on the radar screen before the housing collapse started. Fortunately we are in a well established community with 3400 homes and a nice balance sheet, but even that got crazy for a while with our loan being denied twice before finally being approved.

Anyway, better than 2 months and it's a done deal and we moved from a blended rate of about 6.5% down to 4.25%. We paid 1.75 points which included a quarter of a point for escrow waiver.

I could pay off the house but that would seriously cut into my investing money and, over time, I do much better than 4.25% per annum, so we'll play the mortgage game for a while longer.

Times, they surely have a changed. This deal under normal mortgage times would have closed in a maximum of 3 weeks. And this was a clean deal: self-employed borrower with two years tax returns and YTD Profit and Loss, stable long-term employment, lots of cash reserves, proven ability to save at the higher mortgage rate, good credit, reasonable debt, primary residence, gated community, deed restricted area, clean appraisal, etc., etc.. All facets of the deal were nice and in place and easily verifiable by third party (which, by the way, was done by the lender).

There were some last minute crazies with the HUD-1 (Settlement Statement) and we were informed at 12:30 this afternoon that we were closing today. All of that last minute rush stuff made us both feel like we were back in the business again! It kinda felt good, I had almost forgotten the closing crazies. However good it felt, I'm still glad I'm not in the business anymore.

Don't know if there is anything in there that helps anyone, but this thing has dragged on for so long, I just need to get it out.

Thanks for reading.