Refinancing questions and answers

February 13th, 2009, 3:00 am · 14 Comments · posted by Mathew Padilla

Randy Johnson, president of Independence Mortgage Co. in Newport Beach, author of “How to Save Thousands of Dollars on Your Home Mortgage” and a mortgage broker since 1983, answers questions…

Charles in Irvine asks:
Q. I refinanced two months ago at 6.25% and plan to stay a while. If I again refi at the current 5.1% would it be to my financial advantage in the long run. Lowering my monthly payment is my desire. I previously paid one point and an appraisal fee. I borrowed $243,725 with a payment of $1,613, which includes $100 a month for property tax.

A. It certainly would. You will save 1.15% times $243,725, which equals $2,802 per year. That means you get the costs back in less than three years, a terrific deal. Not only that, I think that if you are patient, you can get a better rate than 5.1%. Every loan I have done for the last two months has started with a 4. But I would start the process now without locking in. Get all approved and ready to go and let the rate float until it hits your target. Just don’t get greedy.

Refi Hopeful in Rancho Santa Margarita asks:
Q. I am planning to refinance. When would be a good time? What is the difference between going direct to a mortgage lending institution vs. a mortgage broker? Is the mortgage broker’s fee added to the loan amount?

A. In these troubling times no one, including the Secretary of the Treasury, knows where rates are going. Rates are so attractive now that I would certainly start the process.

As to your questions about mortgage brokers, you do not pay more to use a mortgage broker. Brokers get wholesale rates from lenders that are cheaper than retail rates. That difference between them is the broker’s commission. Another way of saying that is that you do not save anything by “cutting out the middleman.” In fact, brokers can get incentives that they can pass on to you, making their deal better than the institutional lenders.

Brokers offer an additional advantage because of their access to a number of lenders. No one lender ever has the best rate every day so the broker can shop for you. Be sure to get an agreement with the broker at time of application as to his fees.

The other factor people may not acknowledge is that they need help. So I would look for a broker with experience. It seems as if half the loan officers in the business, both brokers and institutions, are twenty-somethings who have only been in the business a short time. They can’t be of much help to you because they haven’t learned enough yet.

That’s it. If you want Johnson to answer a question, email it to Mathew Padilla at mapadilla(at)ocregister.com. Include your name or nickname and the city you live in — that information will be published with your question.

Johnson will answer up to three questions each week, so keep checking back for a response. If many questions are submitted, it could take a while to get a response, or he may never get to it. Also, readers keep submitting variations on the same question, which has already been answered: what to do when you can no longer afford your mortgage. I have decided not to publish most of those questions, because they are repetitive, although I appreciate the difficult situation many homeowners are in these days.

Read prior questions and answers by clicking on the headlines below…

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Big D in Texas says:

February 13, 2009 at 6:55 am

If all of the mortgages are going through Fannie and Freddie, how can the rates be different? I thought the private market was frozen so it wouldn’t matter what lender I go to, so long as they are selling to Fannie and Freddie. I’m speaking of someone with perfect credit, full income documentation and more than 20% down making 100K and purchasing for 150K. Wouldn’t Fannie and Freddie pay the same to all banks for that loan?

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shadow735 says:

February 13, 2009 at 8:00 am

Isnt there a law preventing someone from refinancing again within a certain period of time?

Liar Loan says:

February 13, 2009 at 9:13 am

Shadow-
Lenders will refi within 12 months, but they won’t usually honor a new appraisal for a higher amount within that time. It’s a safeguard to prevent flipping scams. Also, there’s a law against lenders soliciting their existing borrowers for a refi within a certain amount of time. I can’t remember if it’s 12 months or 24 months. This is to prevent equity stripping by the lender for charging origination fees again within a short time period. However, if the borrower contacts their existing lender about a refi, I believe it’s still allowed to go through, but they won’t honor a new appraisal as I said.

beware says:

February 13, 2009 at 9:19 am

not a law, shadow- an obligation. its the brokers who need to not be greedy. rule of thumb is 2% less in rate to justify fees and costs added to balance plus turning the clock back to start term over again. there is also no law to force brokers to fully disclose fees. you think you only paid one point and appraisal. brokers make additional fees from lenders for upselling rates. charles, you are just making your broker happy by paying him again! don’t do it- you’re rate is decent, don’t get caught up in serial refis…

Larry P. says:

February 13, 2009 at 9:22 am

Shadow735….no, there isn’t any “LAW” preventing this kind of refinance….there are “guidelines” preventing multiple cash-out refinances in a specific period of time but a simple “rate-and-term” refinance to change rate and/or terms can be done.

BigD in Texas, this is the fallacy that many people think when they think “Well, I’ll just cut out the middleman and save money going through the bank”. LOL! If only it were so simple. See, the government agencies pay a certain amount literlly throughout a given day for a specific rate with many other criteria adding or subtracting from that rate….we call them “Hits” to the pricing/rate! This is what determines the final rate a borrower receives and as such determines the ULTIMATE cost of the loan. Since banks are not required to disclose their “Yield Spread” they receive from Fannie/Freddie/FHA they ALWAYS have higher posted rates though they cover it with generally lower fees. I have often said on this blog there hasn’t been ONE loan I was BEATEN on by a bank in rate or fees in YEARS because I could make as little as I feel like on a loan where the bank MUST make money since they are just going to sell that Fannie/Freddie loan off.

I walked into a BofA the other day and laughed out loud at their posted 30-year fixed: 5.5%. I could get that for someone at $300,000 80% LTV Rate and term, Full doc with a 740 FICO , pay for all their fees and costs, and still make $2,000. They were offering it with $2600 in fees! Mortgage Brokers have taken a big PR hit these past two years because of the Daniel Sadek-types running around (and rightfully so for that type of sleezebag) but the good ones will make YOU money by keeping more of it in YOUR pocket than some big publicly-traded profit-driven bank ever would!

February 13, 2009 at 9:24 am

Randy shamelessly promotes brokers as a better option than borrowing directly from banks. I think makes sense to have access to many banks through a broker when you have a special situation, but as Big D alluded to above, you shouldn’t need a broker if you’re getting a plain vanilla loan. Unfortunately, not all brokers have your best intentions in mind, and they may push you into a loan that’s not in your best interests as we saw repeatedly over the past few years. The best thing you could do is get competing offers from different brokers and banks then go with the best one. Get a Good Faith Estimate from each of them, compare the terms, and make a decision. When the loan is closing, look at the Truth in Lending statement to make sure your loan terms match what was offered on the Good Faith Estimate. Remember, they can’t force you to sign no matter how late into the process you are. So if your broker/bank pulled a bait and switch, it’s best to walk away.

February 13, 2009 at 10:33 am

Larry P-
Thanks for the response. You’ve given me something to think about. One question, what about LL’s comment that a plain vanilla loan would be the same?

I just want a par quote. No points, no origination fees. My Credit Union (USAA) will give me one. Will a broker be able to beat it? And if so, is that only by cutting into their own commission? So in other words they are the same but the broker is doing the equivalent of what RedFin does with realtor (I refuse to capitalize that word) commissions.

When the time comes (in a year or so) I will check all sources because I like to comparison shop but I’d like to understand why the rates may differ.

Thanks

February 13, 2009 at 11:37 am

Big D-
It’s good that your looking at your credit union first. Since credit union’s are not-for-profit, that should work in your favor as far as costs go. My loan was through OCTFCU and they only charged $500 to originate compared to $2,000 that my realtor-referred broker wanted. With no profit margin built in, they were just covering salary and overhead with that fee.

mortgagemaker says:

February 15, 2009 at 10:08 am

Let me put it all to you in a simple way - if you want to get a loan for free you better pray that your loan has no issues. Title issue, appraisal issue, income issue, credit issue etc. Now, with todays massivly declining value problems, every loan is going to have an apprasial issue. Your local bank and your local credit union have people with very limited experiance working on your loan, that is why I close loans every month were the client went to the CU and thought everything was fine, till they never called them back. Its not easy to get a loan funded in this market, why would anyone think it would be? Frankly, any loan done is So Ca today, will be under water within 1 year, just like any loan that has been done the previous 3 years. Im not sure why any bank or lender would want to buy paper in So Ca right now, but they do.

rob says:

February 18, 2009 at 3:57 pm

Just got 5.375 today fixed for 30. Had to pay 750 in costs but went from 6 and no points. I am a little dispointed but to get under five those bloodsuckers charge you a full point and closing costs which would take years to recoup. The interest rate should be under 4 percent with no fees or points. It should be run by the government who set the rates which would have zero profit margins. That way all these losers that do loans can get a real job and do something usefull with there lifes. I am sure they will be proud to have on their headstones “I got you a great rate”.

Randy Johnson says:

February 18, 2009 at 11:34 pm

I find it interesting to find so many mis-conceptions about how the mortgage market works.

For example, rob, the “bloodsuckers” who wanted that full point are at Fanne Mae which would have gotten that point had you bought down the rate to under 5%. As it was, Fannie Mae paid your originator, whether a bank or a broker, their fees. You pay an extra 1/2% every year to avoid paying 1% once. Not much of a bargain. Ever since the Treasuery Dept. took over pricing at Fannie Mae, zero point loan are no bargain.

As for rates going to 4%, it’s not likely. An investor can buy a 10-year T-note with a yield of 2.8% today and it’s fully guaranteed and he has liquidity. Why would he buy your loan for a yield of 4% and take the risk and have no liquidity? Rates have been over 6% since 2001. Why can’t you be happy with the recent decline that is allowing a lot of people to improve ther situations to to buy a home that they can afford?

While there is no question that there have been a lot of dishonest people in the mortgage business. They have been an embarrassment to the honest ones. Still, today there are many, many people who are honest, who will show you everything upfront, show you the lock commitment from the lender, treat you with care and concern and look out for your interests. And all they want is fair compensation for helping you. But you ought to be kind in return. This is a two way street.

February 18, 2009 at 11:54 pm

I want to comment about promoting brokers compared with banks.

I have been a mortgage broker for 28 years and have saved my 4,500 clients millions and millions of dollars. No shame in that. I’m proud of it. Ususally I have done that by showing a client how they can meet their goals by some different loan alternative than what they thought they wanted when they first came in. I have never showed someone some loan that cost them more. Why would I do that? I make the same compensation regardless of what loan they choose or what lender we go to.

The banks increasingly look at the job “Loan Officer” as an entry-level position or one they “rotate” trainees through. The “agents” at a bank’s 800 number is likley to be a twenty-something kid who is making $10 per hour. They don’t really know anything, so how can they help you?

If you don’t think you need help or can benefit from an expert’s experience and guidance, go buy a book on mortgages or take one out at the library. Spend a weekend with it and you will be astonished at how much you have learned.

So yes, I recommend brokers, NOT ALL OF THEM, but if you take the time to get referrals from friends, you will find an honest one who will make you glad you looked so hard. If you come in their door having spent the time getting an education, you will find the relationship even more rewarding.

carrie says:

April 22, 2009 at 10:16 am

I have a countrywide home loan and the place won’t refinance. They said they aren’t willing to help me when my payment was 14 days late? How do I get help from here?

April 22, 2009 at 11:57 am

Carrie,
Try asking them for a modification… specifically, ask for a modification under the Home Affordability Program which is the new Obama program. It’s designed to take payments down to 31% of your gross monthly income. You may have to be stubborn and persistent, and ask for managers, supervisors, etc. to get some meaningful help. They are swamped with many requests, so persistence can pay off. Be prepared for a long process that can take several months and many phone calls, faxes, etc.

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