May 7, 2001
"My current mortgage has a
balance of $68,000 and a rate of 8.125%. Judging from the rate quotes in
the press and on-line, I should be able to refinance at 7%. Using your
refi calculator, I should be able to cover the costs within 25 months. To
my surprise, however, the mortgage brokers I have approached don�t seem
much interested in my business. Can you explain why?"
Yes. Mortgage brokers are
currently swamped with more business than they can handle, and a
refinancer with a small loan balance is not a preferred customer.
In general, both lenders and
brokers would much rather deal with home purchasers than with refinancers.
Purchasers have a drop-dead date on which they must close a loan, which
strengthens the bargaining position of the loan provider. The customer can�t
bail out a few days before closing if things aren�t going quite right.
Particularly vulnerable are home
purchasers who allow the price of the loan to "float with the
market" until shortly before closing, in the expectation that
interest rates may go down. When it comes time to lock, they discover that
the market price is what the loan provider says it is. If an unscrupulous
loan provider understates the decline in market rates that has occurred
since the original price quote, or overstates the rise, the purchaser has
nowhere to run.
This game can�t be played with
refinancers who have no deadline. They can allow the price to float
indefinitely in the hope that interest rates will decline further. When
they do lock, the loan provider knows that if the price doesn�t smell
right, the customer can easily bail out and go elsewhere.
Unscrupulous refinancers,
furthermore, can sometimes have it both ways. Locking the price protects
them against an interest rate increase, and if rates drop they can
threaten to bail out of the deal unless the loan provider agrees to drop
the price.
Unscrupulous brokers and
unscrupulous borrowers deserve each other. Refinancers who want to play
the game straight should patronize mortgage brokers who play it straight.
They are called Upfront Mortgage Brokers and they are listed on my web
site.
Bear in mind that loan providers
in general don�t much like $68,000 home loans because the income
potential is small. On average, mortgage brokers make about 2% of the loan
amount, of which less than half goes to the loan officer who guides you
through the process. This isn�t a lot of money for the work involved, so
it�s a good idea to do everything you can to demonstrate that the loan
will be a slam-dunk. You should indicate that you want to close as quickly
as possible, that you know exactly what you want, and that you will comply
promptly with requests for information or documents.
It is also a good idea to let the
broker know that you understand that taking on a $68,000 loan in a heavy
refinance market is doing you a favor. A little appreciation can go a long
way, especially if you indicate that you have friends or family who also
intend to refinance and who are looking to you for suggestions on how to
proceed.
WARNING! While honest brokers may
need to be stroked to take on a $68,000 loan, dishonest ones have no
hesitation because they have ways to pick your pocket. In every refinance
boom, there is an influx of sharp operators out to make a quick score.
Mostly they work the telephone using leads that they purchase from one of
the many firms in that business. When interest rates rise again and the
refinance boom ends, they are gone, often leaving customers dangling in
mid-stream. Before responding to a telephone solicitation, check out
whether and where the firm was doing business 12 months earlier.
Copyright Jack Guttentag
2002
