Wednesday, July 16, 2008

Refinance Your Nightmare

It seems that on everyone’s lips these days is the mortgage crisis, followed by a lot of hand wringing from the socialists who want to have the government bail out ignorant morons because they didn’t do their research or understand what they got themselves into when they signed for the loan.

It is real simple. You have a loan program, an interest rate, a principle amount of the loan and your income. The idea is to make the interest rate the lowest possible so more of your income goes to paying down the principle. This is all done through an appropriate loan program. My favorite loan program to hear about is the negative amortization loan, where you pay less than you should each month, and the difference is just piled on top of the principle. For example, your interest on a $300,000 loan is 6.0% and your payment is only $1500. However, to make a principle/interest payment, you should be paying $2200, but you don’t have to. With a negative amortization, that extra $700 you should have paid just goes on top of the $300,000. So, in the second month, you now owe $300,700.

You can see where this is going. By the end of the first year, your loan is now $308, interest!

Who would sign their name on this?

At any rate, just last Friday morning, I forced shut the book on an attempted refinance that would have turned out to be a bad deal for us. The funny part is that we would have signed the papers that day, after a four-month-long struggle with the loan officer and a series of unfortunate events, each one a slap in the face to wake up to the fact that I was getting screwed.

I didn’t notice any of those attention getters until Friday… the very last day.

What if I had waited until Saturday when it was too late?

One of my very favorite movies of all times is “Double Indemnity” (no, the 1944 version). You know, Fred MacMurray, Barbara Stanwyck, Edward G. Robinson…they kill the husband for the insurance money. At any rate, Robinson’s character, an insurance adjuster/investigator talks about this “little man” in the pit of his stomach that ties him up in knots when something about a case seems wrong. That’s exactly how I felt on Thursday night, something seemed amiss.

Four months ago, at the advice of our financial planner, I contacted a loan officer to see about getting the house refinanced. We are currently in a 5/1 ARM, meaning we have a five-year fixed-interest-only loan that will turn adjustable in the sixth year. We have two years left on the loan, but I thought it would have been a great time to refinance out of that loan and into something more stable, a nice 30-year fixed-interest rate that would set us for the bulk of our lives.

The problem with mortgages is that any loan over $417,000 is considered a “jumbo loan,” meaning that it has a larger risk to the loaning institution. That risk involves a higher interest rate, and since I’m all about paying the least amount of money possible, I actually came up with the suggestion of getting two loans, one to pay down the principle to under $417K so we could get a normal conforming loan with a lower interest rate.

The loan officer exclaimed that it was the perfect time to refinance as--just out luck--interest rates took a sudden dip, something we wouldn't see for a few years.

At this point, we started the paperwork, and thanks to irresponsible loan officers who would have given a loan to anybody with a pulse, now the underwriters demand everything just under a urine and blood sample from prospective loan clients. I was told that, for someone with such impeccable credit, the process is still quick and easy and that we would be done in about a month... 45 days at the latest.

Then it started to drag. The company we were working with got accidentally deleted from the bank’s files because it shared a name similar to another company that went bankrupt. Therefore, all of our paperwork was lost and we had to resubmit it. But don’t worry, Ryan, we’ll knock off $500.00 from the closing costs… great. He said it would take a day to get back on track, but it took nearly two weeks until I heard from him again.

If I had sent him any money, I would have thought they he ran off to Vegas with it.

Each time something like this would happen, our loan officer would call me out of the blue and start the call with “I’ve got good news and bad news…” The funny thing was that there was never any difference between the two. The good news was always expensive and the bad news was a change in plans that would cost me money.

The main plan started out that we wanted to pull out $10,000 from equity to make some improvements on the house. No problem, we were told. Let’s just get an appraisal and see what your house is now worth. Oops, it seems as though the value of your house has gone down and when compared with the amount of money you’d like to borrow, it seems you fall below some sort of magic loan-to-value percentage that would make it impossible… never mind that you have never been late on a payment, nor that your FICA score is 770, so close to perfect that you can smell what perfect had for breakfast—like top-one-percent-of-the-nation’s-people perfect—never mind that… your house, according to some random guy who came and did some measurements and gave it a once-over (for $350), is not worth what you paid for it. Well, I knew that, as anyone who watches the news at night knows the bubble burst and the housing prices have fallen.

A couple of weeks pass, during which time I was assured that the loan would fund in several days. I was told not to pay my mortgage for May because they would just have to send it back to me after the loan funds…that and you won’t have to pay two months of your current mortgage, because this new loan won’t go into affect until June… then August… then September. Each time the date got pushed back for myriad reasons, I had to juggle a barrage of calls from my current bank wondering if I had plans of paying them any time soon. At one point, I was 25 days late on my mortgage. I laid awake at night, not counting sheep, but counting my FICA score plummet to that of a college student’s.

Meanwhile, Kara’s faith and trust in this loan officer’s ability to deliver us into a good deal was beginning to wane. My description of him—a GQ model with a metrosexual flair for high fashion, snazzy trendy hair styles and fast cars—wasn’t winning anyone any points. At one point, Kara got involved in the process, and although I’m not normally a sexist person, but there are times in life and relationships where the man has to take care of things. When you’re mowing the lawn or figuring out why the car is leaking oil or dealing with a disrespectful clerk at the store…and when you’re dealing with hundreds of thousands of dollars… I want to be the one that takes care of it. I know the term no longer means what it used to, but it’s the man of the house’s responsibility, one of the only ones left over from the pre-feminism movement.

However, she was dissatisfied with the delays so she called the loan officer and kicked the spurs into him, so to speak. Secretly, I do love Forceful Take Action Kara! It did garner results, but it only meant that he called me more frequently, and the more frequent the calls, the more frequent the bad news and ever changing developments.

Okay, what next? No money out… at least we’re getting a good interest rate, 5.7%, only 0.3 more than we’re paying now and a good portion of it will go to the principle. I was assured, nay, promised, that if there were any further difficulties, any delays, any cancellations of the plans or changes in the directions that would push us passed the point that the interest rate could no longer be valid, that my loan officer’s company would pay down the difference. In essence, we were guaranteed a 5.7% loan come hell or high water.

Yeah, about that… it seems that since we had a couple of delays, the bank wants another appraisal, but don’t bother yourself by getting one; the bank will send somebody by and take it. And by “send someone by,” they mean that literally. Somebody drove by the house—I didn’t even see them and I see everyone that drives by—and made a judgment. Yes, you thought your house was worth nearly $100,000 less than what you paid for it, try $150,000. And there’s no way we’re giving you a loan at 5.7%, or a loan at any interest rate for that matter. Better luck when the government bails out Fanny Mae next year.

“I’ve got good news and bad news,” the phone call began. The bad news is that the bank canceled your loan because of the magical loan-to-value ratio fell below some threshold that makes underwriters nervous. The good news, the loan officer told me, is that I thought this might happen, so I farmed out your loan to another bank that agreed to do it… for 6.6% interest rate. It only means your month payment would go up nearly $200.00.

I reminded him that he said he would pay down the difference so we would get a 5.7% loan. Well, funny thing about that promise is that it doesn’t hold up when it becomes financially imprudent. To buy down a loan from 6.6 to 5.7, I was told, would be cost prohibitive so they wouldn’t do it. In fact, he even alluded that it was impossible to do, but they would buy it down to 6.3%. I was told that they were now doing the loan for free, but since loans and finance and interest rates all fall under the spells of the black arts, it was a hard notion to swallow.

Doing the loan for free? All of these people? Your underwriters, your assistants, your boss, the bank’s people, the insurance people, the appraisal people, the notary public people… all for free? I had a tough time believing that. Nobody works for free, I don’t care what kind of two-sizes-too-big heart they’ve got… But furthermore, I don’t trust a guy doing anything for free, especially one who has a new Porsche Carrera sitting in the parking lot outside his office with dealer tags still on it and one who brags at the first time I met him that he just bought a new boat.

He’s turning a dime off of somebody… and that somebody was me. Let’s break it down: I’m not getting money out. I’m not getting the interest rate that I wanted. I’m paying more money over the course of the loan than I am now. And… I’m late on my current mortgage, something their collections center reminded me of on a daily basis.

How could it get worse? And how much more would I take?

“Hello Ryan… I’ve got good news and bad news… which do you want first?” At that point, it didn’t matter, it was all bad news, as he wouldn’t have called me otherwise. “The good news is that we are ready to fund this loan,” something I had heard three times before so I wasn’t going to hold my breath. “The bad news is that you need to come up with $3000 to pay the back interest on your current loan.”

It seems as though he didn’t do his homework to check my current loan to see what it would take to pay it off. Apparently, interest accrues daily—duh—and the two months that I would have “off” from paying my mortgage until my next one kicks in needs to be paid. Usually, it is rolled into the body of the loan so you don’t have to come up with it. Whether he forgot, didn’t know or just didn’t think of it is a mystery, but however you stack it, $3000 would get sucked from my savings to make up the difference.

“Also…” he added.

I love alsos when we follow bad news. Also, since we’re refinancing within 90 days of renewing your homeowner’s insurance policy, they need that money too. So, the following day, I needed to wire $4,030.00 to escrow the following morning in order to finalize the transaction and begin signing the paperwork, but do you know what bothered me the most at that point? Not the money or the interest rate or the inconvenience of having my life and finances on hold over the coals for the last four months, but the fact that my damn bank was probably going to charge me some extraordinary fee to make the wire transfer.

And the kicker to the story here is that something else should have been bothering me. You know that point in any procedure, be it a dentist appointment or a colonoscopy, that you just want it to be over, even if it means making an unwise decision. I was there. I was at that point that I was willing to decimate one of my saving’s accounts in order to make this loan happen, as if it was a challenge I was trying to overcome.

He sent over the wire instructions and I held it in my hand, staring at the escrow account number… and then it dawned on me. That “little man” in the pit of my stomach began to scream that something wasn’t right, that I was being taken for a ride.

I fretted all day, at one point, I think I even caught myself physically wringing my hands in vexed anxiety. Later that night, Kara and I made a list of pros and cons to the benefits or detractions of refinancing.

There were no pros, and Kara suggested I call Jason’s mother-in-law, a loan officer who helped us finance our first house. Why we didn’t think of it sooner is a mystery to me. Maybe it was blind loyalty to strangers whom we felt we trusted or whom we listened to what we wanted to hear, but what we were hearing wasn’t the truth.

The morning we were due to sign the papers, I received a phone call from the notary public to schedule a time to “sign the docs.” I let it go to voicemail because I wasn’t yet ready to deal with the decision. Instead, I called Jason’s mother-in-law, and we had a long chat about what an idiot I was.

The long of the short of it, my eyes were finally opened. I could see the light, like a blind man healed! Why would you, she asked, increase your interest rate for no reason? She could understand if I needed to get money out (which I wasn’t) or if my loan was about to mature (which it wasn’t for two more years), but since I wasn’t making any changes to the structure of the loan, except for the interest rate, why would I do that to myself.

And after all of this struggling, fretting, fussing and hassle, it came down to the simplest of solutions: “If you want a 30-year-fixed loan, then make your payments like you have one.”

It was that easy. She stressed, “I would strong advice you not go through with this.”

It turns out that when you need to make a Porsche payment, your judgment to do right by your clients and to give them a package they could live with, falls by the wayside.

I sent him a polite letter in writing that we’re backing out of the deal and I pointed out why I felt it was in our best interest not to refinance at this time, but the message didn’t get to the notary public who seemed shocked that someone would have the nerve to cancel right before setting pen to the dotted line.

This morning, the loan officer called me to reconsider, which only proves that they were making money somehow on this deal. He tried to make me feel bad that so many people put hours and hours into this deal “working for me,” but I wouldn’t fall for that.

Then, as if by magic, he waved a wand and told me that interest rates are back down to 5.7%! Imagine that! Last week, I couldn’t have saved the bank managers life and got a 5.7% loan, but this week, the voices of fates have blessed me with such a change in fortune.

Nobody tries that hard to get me to sign if they weren’t making money.

What a wonderful life lesson for me this has all been, but the one last spark of good news to come out of this. On that Friday afternoon I got a letter in the mail from the county’s tax assessor’s office to inform me that my house had been reassessed for the next year’s property tax and they’ve dropped my value, which means I’ll save about $1,700 on my tax bill this year. It seems as though they didn’t use the assessment I paid for, but the lesser value derived by the bank’s drive-by assessment!

That, indeed, was the silver lining.

1 comment:

Brian said...

If you are still looking. We have a family friend that has done our entire family's loans for years. Let me know.



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