Home Refinance Question

I currently have an FHA mortgage on my home at 4.5% that I purchased in 2010. Of course FHA mortgages at that time come with mortgage insurance that must be paid until LTV reaches 78% (I think) of the purchased value. This takes about 11 years. I’m looking to refinance because rates are under 4% and my home has increased in value quite a bit.

My current lender offered to refinance into a traditional fixed 30 yr. mortgage at 3.75% assuming my LTV was 80%. I paid for an appraisal and, unfortunately, it came in lower than everyone thought…I’m at about 82% LTV. I will have to have PMI for about a year as a result. So, after underwriting took this into account my interest rate was raised to 3.875 with a -0.25% credit toward closing. Even with PMI this seems like a good deal as I will be saving a considerable sum monthly and over the life of the loan.

The above counteroffer was made in October and I decided to move forward with the process. Since then I have asked on numerous occasions for a new loan estimate or GFE that breaks down the closing costs, etc. The loan officer kept telling me he was having trouble generating one. This was aggravating but I didn’t think too much about it. I finally received a new GFE yesterday which is over two months after the counteroffer was made. The GFE lists the correct interest rate (3.875%) but, instead of a -0.25% credit, they were charging me 0.5% for the loan. I emailed my loan officer and he stated that this was a mistake and that I now have a -0.125% credit toward closing.

Now I’m angry and I’m not sure if I should be. I was offered a loan at 3.875% with a credit of -0.25%. The GFE shows that I must pay 0.5% and my loan officer tells me that I now have a credit of only -0.125%. This seems very sloppy to me at the very least. I started this process in September so I’m also not happy that it is taking almost 4 months to complete a refinance. I feel like they are dragging their feet and have lowered my credit toward closing just because they can. Sure, I can still walk away but then I have to start the process over and I’m out the $500 for the appraisal.

I’m wondering what could have caused the closing credit to be reduced. Is this at the discretion of the loan officer? He claims he has no idea why the credit was reduced and will look into it. I should also mention that I locked my rate in September and the bank extended the lock because of the time it has taken to get this refinance done.

Is it commonplace for credits toward closing to be reduced like this or am I being screwed over?

Rates are higher now than they were in October. Most rate-locks last for 61 days. So my best guess is that you were charged points for a rate extension. The alternative is a system error that someone did not catch. If there was an error in your favor on a document you signed, the bank has to honor it (this doesn’t apply to an old GFE, which is overridden by the new one). If there was an error in the bank’s favor, they need to correct it.

I process loans and work with loan originators on a daily basis. You may have a flaky one, although he’s likely telling the truth about system issues. The estimate/disclosure regs underwent a massive change back in October and a lot of banks (especially smaller ones with a poorly-supported LOS [loan origination system]) have been struggling with technical issues ever since. It’s not called a GFE anymore, it’s a Loan Estimate now (LE). But old applications that were started via GFE were grandfathered to continue using the old system. That may be the source of the problem your bank is having with your file–not that it matters, it’s still their responsibility to fix.

Long story short, we can’t really know what is going on, but someone at the bank should be able to find out. Do you have a processor you can contact? Check your commitment letter, I’m hoping it will contain at least one other point of contact (don’t ask to speak to the underwriter, it’s not a customer-facing role and you’ll only ruffle feathers). If you are worried about pissing the LO off, call the bank’s general customer service line and ask to speak to your processor by name. If you live in an attorney state, talk to yours. You can also try to call or email the settlement agent (which, depending on the state, is either the bank attorney or title company). Keeping in mind that they aren’t working in your best interests unless you hired them, they still may be able to help you.

If you don’t care about pissing off your LO, ask to speak to their manager for an explanation. What I would do is lay out the entire situation in an email to your loan officer. Ask them to forward it to their supervisor. You can also try talking to a branch manager at the bank. These suggestions may not get you anywhere, but all are worth a shot. Use the threat of withdrawing your application as leverage-the LOs at my bank are commissioned based on the number of loans they close (not the dollar amount or interest rate, as those lead to violations of fair lending regs). I’ve seen LOs move mountains to save a deal, and yours still sounds very salvageable.

Good luck!

Thanks for the informative response! The bank has taken longer than anticipated to close this refi so they extended the rate lock. Can they charge me for that even though I am not responsible for this process taking as long as it has?

Yes. They’re actually doing you a favor by allowing you to extend your original rate. The bank has no obligation to extend the interest rate beyond the original rate-lock period, no matter what the cause. Given that rates have increased since you applied, they’re taking a hit by allowing you to, essentially, buydown your original rate.

I cannot believe that any bank would deliberately sit on a loan application, doing nothing, for several months. There are many issues that delay processing that are not the bank’s fault. It could have been a delay on the part of the appraiser, asset/income/credit docs in need of additional documentation/verification, grant funds needing approval, issues unique to the property/title, etc. Maybe an oil/gas lease needed to be released. Maybe the property was in a flood zone. Maybe they needed your divorce decree and it wasn’t available for weeks… been there, done ALL that!

If you know the delays are not your fault (failure to return documents in a timely fashion is my biggest thorn), and there are no apparent issues with the property (check your commitment conditions!), definitely start asking questions. There’s a reason this is taking so long.