Refinancing Your Boulder Real Estate Can Cost You Big Money
If you’re thinking about refinancing your Boulder real estate, it’s important to do business with people you know, who are referred to you by people you know, or at a minimum you can eventually look in the eye. I say this because I’ve seen several people have problems with their loans due to picking a lender from a mailed solicitation, phone solicitation or an internet search … often ignoring the advice or their trusted advisors.
Watching a CNN show this morning called “Home Front” I saw that a recent poll showed that over 50% of the borrowers who are now facing potential trouble with their loans only have themselves to blame according to poll responders.
I find that an amazing thought. I’m certainly all for us recognizing that we’re responsible for ourselves but what many of those polled don’t realize is that as lending policy loosened several years ago more predatory lending tactics emerged.
From the U.S. Department of Housing and Urban Development website:
Over the last several years, our nation has made enormous progress in expanding access to capital for previously under served borrowers. Despite this progress, however, too many families are suffering today because of a growing incidence of abusive practices in a segment of the mortgage lending market. Predatory mortgage lending practices strip borrowers of home equity and threaten families with foreclosure, destabilizing the very communities that are beginning to enjoy the fruits of our nation’s economic success.
Now in this world of “blaming the other guy” for difficult personal situations, I’ll frequently ride the band-wagon of discounting flimsy litigation and pushing for people to take control of their lives but I think that many of us don’t know how easy it is to mislead borrowers.
I’ve seen home buyers almost lose the home they wanted due to unknown lenders from out of state and their cavalier attitude about our contract deadlines. I’ve listened to people talk about how excited they were to find a loan at a ‘super low’ rate but not realizing all the other costs. Interest rate vs. APR?
Lately, a refinancing situation that may or may not be ideal. As the ‘mortgage meltdown crisis fiasco’ continues, I’m seeing people that have adjustable rate mortgages racing to refinance. Even people with loans that won’t adjust for two or three years are jumping to refi into a fixed rate.
I think overall it’s a good idea to refinance right now. The rates are good and if you have an ARM chances are good that the rate will go up when it starts to adjust. What concerns me is that some people get hung up on the advertised interest rate and don’t look beyond that point to understand the total cost of the loan.
Loan officers and mortgage brokers are in business to make money just like all of us and they deserve to make money. One of the ways your L.O. or broker earns her money is by charging a commission, collecting a yield spread premium, charging loan origination fees (points) or discount fees (also often called points). The rough deal for the loan officer or mortgage broker is that this money doesn’t always go in their pocket but often to the company they work for, depending on the company they are with.
The fees for all this turn into a higher interest rate on the loan in many cases. You might get a loan for an advertised rate of 5.75% for instance. Then when you roll in the yield spread premium, discount points, loan origination fees, charges for appraisal and in one case I heard a lender charging for a notary ($200) the actual annual percentage rate (APR) you pay on the loan. When you end up with an APR of 6.5% instead of 5.75% how much will that cost you over the life of the loan to pay that extra .75%? (this is just an example, I’m not trying to do real math here, just trying to discuss the broad topic)
Okay, some hit me on this if you want to disagree, but my intention here isn’t to share the finer points of how this all works but rather to help borrowers and buyers understand that when you’re shopping for a loan to buy a property or to refinance, the best advice I can give you is to work with someone you trust. The next best thing is to get a referral or recommendation from someone in the real estate or lending industry that you trust. Many lenders who aren’t even licensed to work in Colorado, will do loans for people and the fees they charge are high enough that they’ll pay the fine if caught later lending in Colorado.
Even the defunct mortgage lender Ameriquest Mortgage Co. began mailing out restitution checks to thousands of borrowers nationwide recently as part of a settlement involving alleged predatory lending practices.
From a website called The Truth About Mortgage:
Yield spread premium, or YSP is the fee paid by the lender to the broker in exchange for a higher interest rate, or an above wholesale rate. Though the borrower may qualify for a certain rate, the broker can charge this fee and give the borrower a slightly higher rate to make more commission.
This practice was originally intended as a way to avoid charging the borrower any out-of-pocket fees. However, many feel the intentions have been misguided, and have ended up as just another fee the borrower gets stuck with. Be careful to review your HUD-1 or Good Faith Estimate to see what this fee is, and why it’s being charged.
Greg McBride from Bankrate.com was on CNN this morning and he said that he believes that up to 40% of loans will end up in foreclosure and that he thinks that homeowners who are unable to qualify for refinancing should consider selling if possible. He went on to say that even though their home may or may not be worth the total amount of the loan, some lenders are becoming more willing to negotiate a short-pay to avoid having to get the property back through the foreclosure process and into their REO departement.
From CNN HomeFront; the Subprime Rate Freeze Hotline: 888-995-HOPE.
Best advice from McBride: pay bills on time and don’t take on extra debt.