My response to Get Rich Slowly’s “Reader Story: Refinancing in the post financial crisis economy”

A problem the mortgage industry has (one of them) is the perception that consumers have about the mortgage process.

  • Reduced document loans are pretty much gone unless you want to go “hard money”. Even a “streamlined” FHA refinance is not very streamlined – it’s a “full doc” loan minus the appraisal.
  • The lender offering the lowest rate does not mean your loan will close or close smoothly.
  • Borrowers need to pay more attention to the knowledge, expertise and professionalism of the loan officer. This is at least equally as important as trying to find the “lowest mortgage rate”

NEWS FLASH!!!  The mortgage process has changed over the past few years thanks to Congress (who is overall clueless on what it takes to close a mortgage) creating legislation as a result of the subprime era.  And the process is set to become more interesting after the first of the year with more layers of regulations piling on on the process.

I just finished reading this article on Get Rich Slowly about a home owner who had a frustrating time with his refinance. Many of his issues are things that he could have avoided, such as:

  • informing the lender they had a short sale (pre-foreclosure) three years ago.  I’m puzzled as to why this wasn’t discovered right away…plus the borrowers should have declared the short sale/pre-foreclosure under the declarations section of the loan application.
  • letting the lender know they were planning a vacation right after making loan application and making sure it wouldn’t be an issue. Had they selected a loan officer who was more professional, he/she would have most likely informed the borrower that they too were planning a vacation and would have let them know who would be covering their responsibilities in their absence.
  • giving more consideration to the mortgage originators skill level (based on the article, it seems they tried to chase a low interest rate based on who was quoting the “best rate” and skipped reviewing the capability of the person who’s handling one of their largest investments).

Reading the article, it’s plain to see the the home owner selected mortgage originators that were not able to communicate the process to him.

The author of the article offers these tips for refinancing…I’m adding my commentary in italics. His tips are bold.

“Tips to make your refinance proceed smoothly:

  • Shop around for the best rate — not all loans are created equal.  Not all loans are equal nor are all mortgage originators equal.  Rates will vary from lender to lender and will change constantly until you are ready to lock. While you’re in the “shopping” mode – be sure to shop for a Mortgage Originator as well. Make sure you consider their skill level, expertise, manner in how they respond to you, programs they have available, if they’re licensed or just registered, etc. 
  • Get a copy of your credit report, identify any potential problem spots and try to address them before beginning the process. Do get a copy of your credit report early. Please DO NOT make changes to your credit until you select the mortgage professional you will be working with. Many “common sense” actions (such as paying off and/or closing) your accounts may drop your credit scores.
  • Clearly communicate any specific desires, such as whether you want an impound account or would like all costs folded into the loan.  Agreed – and be prepared to learn about whether or not your program will allow you to wave your reserves (you need an 80% loan to value and some loans, like FHA will not allow this regardless of LTV and some loans will not allow you to include closing cost into the loan amount.
  • Make sure to ask your broker about any unforeseen costs you might have to cover at closing. Borrowers should ask for an updated quote (lenders cannot issue an updated Good Faith Estimate – this is also thanks to post-subprime regulations) to illustrate funds for closing. This should reflect the updated payoff balance – which the mortgage originator may not have at the beginning of the loan process.
  • 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. This is true. Be aware that closing towards the end of a month may require a slightly longer lock period and may have additional cost. The longer the lock period = more cost. 
  • Be ready to scratch and claw your way through the process. It doesn’t have to be that way if you select a professional instead of focusing only on the interest rate.

Yes… the post at Get Rich Slowly is frustrating to me. There is more to the mortgage process now compared to even just a couple years ago… but it should not require anyone to have to have to scratch or claw their way to closing. I truly believe had they worked with a professional mortgage originator, it would have made all the difference in their refinance experience.

I did post a comment on the post… not quite as detailed as what I’ve shared here.

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