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May 19, 2003
"I filled out all the forms
to refinance my loan, paid the $350 lock-in fee, provided all the documents they
asked for...But it is now 4 months and still it hasn't closed...Periodically I
call the person in charge of my refinancing, and he says he will get back to me,
and he never does...What do you think could be the problem?"
The problem is that you are trying to
refinance with the lender who has your existing loan. All lenders are under
pressure trying to process the unprecedented volume of refinances. They have to
set priorities. Yours is low because your lender already has your loan.
I have written before about the hazards of
refinancing with your current lender, but the hazard you raise has only recently
appeared in my mailbox. It has impelled me to set down in a more organized way
the pros and cons of refinancing with your current lender.
The Pros
Perhaps the major reason people approach
their current lender is that it is convenient. They are spared having to decide
who and where to shop. If their payment record has been good, furthermore, their
existing lender has immediate access to their record, where other lenders would
have to investigate. There is comfort in "being known", and a belief
that this should earn them special treatment.
There is some validity to this belief. The
current lender � defined as the firm to which you now remit your payments --
may be in a position to offer lower settlement costs than a new lender. How much
lower, however, can vary from case to case.
The greatest potential for lower settlement
costs arises where the current lender was the originating lender and still owns
the loan, a common situation with loans made by banks and savings and loan
associations. If the payment record has been good, the current lender may forgo
a credit report, property appraisal, title search and other risk control
procedures that are otherwise mandatory on new loans. This is strictly up to the
lender.
If the current lender was the original lender
but later sold the loan and is now servicing it for the owner, the potential for
lower settlement costs is less. A lender servicing for others must follow the
guidelines set down by the owner. If the owner is one of the Federal secondary
market agencies, Fannie Mae or Freddie Mac, the guidelines are theirs. While
both agencies have provisions for "streamlined refinancing
documentation", the discretion granted the lender, and therefore the
potential cost savings, is quite limited.
The potential for lower settlement costs is
least when the current lender was not the originating lender and is not the
current owner. This is a fairly common situation that arises when the contract
to service the loan is sold. In this case, the lender may not be in a position
to use all of the streamlined refinancing procedures because its files do not
contain some of the information those procedures require, such as the original
appraisal report.
The Cons
The major argument against refinancing with
your current lender is that that lender may not give you the market price. It
will try to minimize its loss by taking advantage of your preference for staying
put, and your reluctance to shop the market. Any settlement cost benefits your
current lender can offer that other lenders cannot may serve to draw attention
away from the fact that the rate and points offered are not competitive
Above-market offers are especially likely if
the lender takes the initiative in soliciting its own customers. Lenders who do
that are likely to base their offer on the borrower's existing rate. For
example, in a 5% market, the borrower with a 7% mortgage might be offered 6%
while a borrower with a 6% mortgage (but who is otherwise identical) might be
offered 5.5%. The objective is to provide a saving over the existing loan
that is attractive enough to discourage the borrower from looking elsewhere.
This way, the lender gives up as little as possible.
The unfortunate borrower who wrote the letter
above points up an even greater hazard: the borrower dealing with his current
lender may get the run-around because that lender has no interest in completing
the deal. Why rush to convert a 7% loan into a 5.5% loan? Charging a lock fee
and then letting the borrower dangle is particularly vicious.
The Preferred Strategy
I advise borrowers to 1. Find out the
settlement cost savings their existing lender can offer them; 2. Find their
market price by shopping elsewhere; 3. Shop their existing lender last.
Copyright Jack Guttentag 2003
I am planning to refinance with my
current lender. (from my original jumbo adjustable loan to a 15 year fixed
conforming.)I am in southern California.
Before I submitted my application, the
loan officer stated that there is a 30 day free lock. I have been asking for a
lock/loan commitment ever since I submitted the application (12 days ago)but he
keeps saying it's too soon to do so. (I have not just asked for a lock, I have
stated that I am anxious to lock since rates are low.) First, he said we might
not be able to complete the process in 30 days so we should wait. I reluctantly
went along with it. Then, yesterday he said we would finish within the next 30
days and I again said I want to lock. He said we need the loan number first,
which he should have in a few days.
I'm afraid he's playing me for a chump,
but since I have already stated that I want to lock and he has said no, I'm not
sure what to do. I don't want to anger him by trying to go over his head, since
he said that all the decisions are up to him.
(I am a self-employed consultant and do
not want to document my income. Before I submitted my application, the loan
officer stated that because I am an existing customer with a perfect payment
record, etc. that income verification would not be needed - at his discretion-
AND he indicated that I would not be given a higher rate than someone who
documents income.
On 10/19/01 he quoted me a rate of 6%
with 0 points. This was much better than other quotes that I got over the phone
for a stated income loan. (However, he would not give me a loan
commitment/lock.) I have been watching the rates and it seems that they are
pretty much unchanged since then (although there have been some small movements
up and down in the interim.)
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