This reader story comes from Tony Kontzer, a freelance journalist who has written about business and technology since the dawn of the public Internet. He works from his home in the Bay Area town of Albany, Calif., where he and his wife are raising three boys and progressing on a years-long re-imagining of their entire home. His approach to home improvement projects could be called brute force: there's nothing a power screwdriver won't solve. His infrequent Twitter posts can be found at http://twitter.com/tkontzer.
Mortgage refinancing just ain't what it used to be. The last time I refinanced a home, back in 2005, the mere mention of the word “refinance” caused mortgage brokers to come running from all directions bearing champagne and flowers, and accompanied by a notary.
In the current post-financial-crisis economy, the process of securing a more affordable mortgage payment is much more harrowing, and with good reason. After years of shady practices that slid every John and Jane Doe into a shiny new loan, lenders are operating to a new standard in which customers have to actually demonstrate their ability to make payments for the long-term.
We had a plan
My wife and I knew the process had been tightened up, and that we had some issues that would probably prove challenging. Even so, nothing prepared us for what we'd endure when we dove into the refi game this summer.
Our first surprise came during the selection of a mortgage broker. We started by contacting the one who'd helped us secure a Federal Housing Administration (FHA) loan to purchase our home in 2009. But, in the name of due diligence, we also reached out to a couple of other brokers in our neighborhood, emboldened by enthusiastic Yelp reviews.
After getting a decent rate quote from one of those local brokers, the incumbent bowed out, informing me that he couldn't compete with the rate we were quoted. When I asked why, he told me his company was artificially raising its rates to discourage new loans so it could catch up with a crowded pipeline of refinances-in-progress. I'd never even considered the possibility that a financial services company would turn away business because it had too much of it. That's like an addict turning down drugs because he's too stoned.
Stunned by this development, we opted to pursue a loan through the local broker, embarking on a process that would present as many potholes as any back-woods dirt road I've ever driven.
The fun started right off the bat. We informed the broker that we'd be going on vacation the following week and wanted to get things started before we left. Over the next few days, we gathered bank statements, tax returns, a copy of our trust, business documentation, etc. — and left on our trip under the assumption we'd return to progress. Only when we got home, the broker had just left on his vacation, a fact he'd failed to mention. Another week passed.
The unraveling of the plan
Soon after the broker returned, he told us that my wife's credit rating was being dragged down by a late payment my wife had made on a $40 balance for a retailer-issued credit card. Considering the small amount, and the fact that the late payment came a month after she'd given birth and while she was suffering from post-partum depression, we figured that would be no problem to fix. Wrong. A series of about three or four conversations with the retailer, along with a carefully worded letter, went nowhere, and it appeared this measly $40 might actually stop the loan process dead in its tracks.
That's when my wife got the idea to write the CEO of the retailer, and lo and behold, the executive suite clearly didn't want the stain of having wronged a new mother, and the late payment was wiped from the record. Victory. On with the loan.
Oh, but wait. Then the broker noticed that on one of our credit bureau reports, the item detailing a short sale we'd closed three years earlier included the following language: “Foreclosure proceedings started.” The lender he was working with wouldn't go near borrowers whose credit reports included the dreaded “F” word.
Now, as anyone who's gone down the short-sale path knows, in order to get out from under an “underwater” loan, the homeowner has to demonstrate financial hardship, starting with skipping a few mortgage payments. Hence, the opening of foreclosure proceedings — as a formality. The broker figured it would be no problem to correct this.
Alas, the lender in question — whom I will mercifully not mention by name — absolutely would not budge. We wrote a letter, we made multiple phone calls, escalated things to a supervisor, and explained that the simple (and unnecessary) appearance of the word “foreclosure” was going to prevent us from bettering our lives, and yet we kept getting the same frustrating, inhuman answer: “We only change a credit report if it's inaccurate, and in this case, the report is accurate.”
The last we spoke to that lender, we asked to hear from a higher-up supervisor. That was nearly two months ago, and we have yet to hear anything. Inexcusable.
The surprise plan
Happily, our broker had, in the meantime, secured another lender who would work with us despite the credit report issue, at a slightly higher interest rate that was still an improvement over what we had. We'd be able to knock about $450 off our mortgage payment, as well as shed the $230 monthly mortgage insurance premium that accompanied our FHA loan.
But there was one more surprise at closing. As we walked into the document signing, we were empty-handed, having made it clear that we wanted all of the fees tacked on to the loan. But what we didn't know — because nobody told us! — was that when you refinance an FHA loan, the new lender requires you to make a deposit with the title company to cover the interest that would accrue through the ensuing month. That meant unexpectedly having to write a check for more than $3,000.
To make matters worse, the title company was supposed to return the bulk of those funds to us a few days later, but — oops! — they accidentally sent it all to the new lender and we had to wait three weeks for a check, which presented us with some significant — albeit temporary — financial challenges.
In the end, we had a new loan that left an extra $680 a month in our pockets. But I'd be lying if I said there weren't moments when we wondered whether it was all worth it.
Tips to make your refinance proceed smoothly:
- Shop around for the best rate — not all loans are created equal.
- Get a copy of your credit report, identify any potential problem spots and try to address them before beginning the process.
- Clearly communicate any specific desires, such as whether you want an impound account or would like all costs folded into the loan.
- Make sure to ask your broker about any unforeseen costs you might have to cover at closing.
- If you're refinancing an FHA loan, try to close near the end of the month, as that will greatly reduce your interest burden at closing.
- Be ready to scratch and claw your way through the process.