February 25, 2003
Dancing "The Refi Shuffle"
I've been through the process twice now. I've heard countless stories from friends and coworkers. And after my experience last week, I now come quite certain-minded to this decision:
There is nothing in the world that I despise more than closing on a mortgage or refinance.
You wouldn't think this would be such a big deal, would you? I mean, closing is really just lots of paperwork and signatures. But it's not the paperwork that gets me; it's the process. I have yet to personally speak to ANYONE whose mortgage closing went smoothly and as planned. It's the fact that closing on a mortgage or refinance always turns into an immense headache and/or hassle. It shouldn't have to be that way.
For those of you who are considering either buying a home or refinancing your current one, you might want to get yourself mentally prepped right now. In that vein, here are some particulars on my experiences, just so you get an idea of what it is you can forward to.
In early January 2003, The Wife and I decided it was time to look into refinancing our home. We'd bought it in 1997, taking out a 30-year mortgage at a rate of 8.125%. Now, because we were first-time, low-income home buyers willing to (1) buy a home in a certain "certified" town, and (2) jump through all kinds of hoops to save money, we qualified for − and received − an MCC (Mortgage Credit Certificate) on our mortgage. The MCC grants us a federal tax credit each year of 50% (up to $2,000) of our mortgage interest paid in that year. (Basically, when I file our federal taxes each year, we start out with a $2,000 credit toward our taxes.) With the MCC, our mortgage rate was effectively 4.06% for 30 years. Over that time period, without any extra payments, we'd be spending around $49,354 in interest.
In mid-January, with rates hovering in the 5.5 to 6% range, we felt it was a good time to refinance. I went online and researched. I plugged some numbers into a few Excel spreadsheets, and found that we could reduce our term to 15 years, drop our $49-per-month PMI premiums, and thus keep approximately the same monthly payment. As for the MCC, when we'd purchased our home in 1997, government policy dictated that the MCC would be forfeited if and when the home was refinanced. I was willing to part with the MCC if I could get the mortgage term down to 15 years and get rid of the PMI.
I contacted two local lenders. The first, an independent mortgage broker, offered me a fixed rate of 5.235% on a 15-year mortgage. The second, a broker for a well-known national banking chain, said she could lock me in with a fixed rate of 5.5% on a 15-year note − and that she could easily facilitate my keeping the MCC tax credit on the home, so long as I was willing to fork over a $300 transfer fee at closing. (Apparently government policies had changed in the last six years, and for my benefit. Imagine that.)
Anyhow, with the MCC credits figured in, the new 15-year loan would cost us $11,107 in interest over the term of this mortgage ... and that's without factoring in any extra payments. Mr. Math says that's a savings of over $38,000 in interest charges when compared with our current 30-year loan.
Lender #2 quoted me closing costs of just over $1,800. Those could be rolled into the mortgage (an idea I'm not wild about, but willing to live with), which meant I would need only to show up at closing with a good pen and a check for $300 to transfer the MCC.
That sounded fine to me. I signed up with Lender #2.
Over the next several days, The Wife and I filled out about twenty pages of paperwork. I returned them by hand to the lender's local office. A couple of weeks later we received the forms back, all filled in by computer, nice and official-like, with requests for signatures on various highlighted places. The forms were in triplicate: one copy for us, one for submission to the lender, and one for the lender's local office. The only problem? The information on the forms − ranging from our previous addresses to our ethnicities to our current financial assets to expected closing costs to expected borrowed amounts − wasn't the same on each copy. Monetary differences ranged from $10 to $500 from one form to the next.
I called the broker the next day. "Never mind filling those out," I was told. "Those weren't the correct forms for your loan. I mailed out the right ones ... let's see ... yesterday, as a matter of fact."
Nice. And I found this out only by MY having to make a phone call. Already I was feeling hefty pangs of anxiety. Perhaps I was dealing, once again, with highly-paid clans of idiots? "So I'll just fill those out and send them back in a few days?" I asked.
I let it go at that, and hung up. Two weeks passed. No forms arrived. I made another phone call to the broker's office.
"Well, actually," she said, "you won't need to fill out anything else until closing, since you're going conventional. We have all we need right now to get this underway."
"That's funny," I told her. "I had the understanding that you'd already mailed me another batch of forms."
"Nope," she replied. "Turns out we didn't need them. You guys' loan package is already submitted and underway."
At this point − and maybe I was jumping the gun a bit − I concluded that I was in the company of ... well, of low-watt bulbs. I was being set up for a Mortgage Mess. It's not like these people don't do this stuff EVERY SINGLE STINKIN' DAY. And yet STILL they can't manage their tasks correctly. Anyhow, my confidence was pretty well shot. "Fine," I said. "While I'm thinking about it, is there anything I need to start doing in order to get my MCC transferred? Forms to fill out or anything?"
"Just call the local MCC office. They'll tell you what to do."
So I did. And the MCC office told me to call my title / abstract company. According to them, I couldn't do the necessary applications; the papers had to be completed and notarized by the abstract company.
"Terrific," I said, and called the abstract company. I was told, quite belligerently, that the MCC transfer wasn't their responsibility, and never had been. I was the one who had to pick up and complete the forms.
So I called the MCC office again and relayed what the abstract company told me. The MCC administrator told me again that IN NO CIRCUMSTANCE could I complete the transfer forms myself. She wanted the name and number of the person I'd spoken to at the abstract company. Ready to shoot someone at point-blank range, I happily obliged.
The next day the MCC administrator called me back, stating that yes, she'd gotten the situation straightened out, and that yes, the abstract company's staff was clueless as to the correct procedures. The transfer package was, however, on its way to their office. I would need only to sign the papers at closing and present a check for $300.
Fast forward about a week, to the afternoon of Tuesday, February 18. I received a phone call from "Leslie" at the abstract company. Our closing would take place Thursday, February 20, at 2 pm. I agreed, and noted a few addresses and phone numbers. "While you're here," I asked, "can you give me any idea of how much money I'll need to bring to the closing?"
"Well, no," was her answer. "We won't know that until tomorrow afternoon, when Ms. Smith finalizes all the figures."
"My closing is less than two days away, and you can't even give me a guess?"
"No. We'll call you tomorrow afternoon with the amount."
Now, obviously, I'd been through a closing once before. The dollar amount we had to bring to that closing was about $500 above what we'd been told it would be initially. And to me, personal experience speaks loudly. Plus, I hear someone else's closing horror story at least once a month. So I knew good and well that there was NO WAY I'd have to show up with only $300. Whatever faith I might have had in their "Good Faith Estimates" and such was long gone, probably floating away in a sewage system somewhere by now.
Anyhow, I'd already mentally "allocated" another $600 to my Mortgage Company Moron Fund (if you've read my site, you can see much time I spend trying to plan for everything financial) as a just-in-case. I figured that, at the least, my actual loan payoff amount would be about $500 more than what my account showed. Even with that, I was still uneasy. Numbers bouncing around in my head set my personal expectation for out-of-pocket closing expenses in the vicinity of $900.
Wednesday afternoon came around. Three o'clock hit, and I got the call from the abstract company. Care to guess the amount I was told to bring to closing?
A mere $1,582.62.
Payable — and they stress this mightily — only by cashier's check.
Now, I had that much money readily available in my savings account, but not by a lot. Plus, my primary credit union is in another town, about an hour-and-a-half away, which would make acquiring those funds in the form of a cashier's check darn troublesome. Suffice to say that I was NOT a happy camper.
I asked the abstract secretary to fax me a copy of the figures, which she did within minutes. As I was perusing the faxed pages, hammering the math into my adding machine, and generally wondering how much time I'd do in a federal pound-me-in-the-ass prison for going on a mortgage company shooting spree, an employee from the lending office called me.
"I just wanted to let you know that you'll be closing tomorrow," she said. "My figures show that we had you expecting to bring approximately three hundred dollars to your closing, and it looks as if you'll actually be bringing over fifteen hundred. I just wanted to call and see if you had any questions."
Gee … you think? "Just one," I said, not cheerily. "Where'd this other twelve hundred and sixty dollars come from?"
"Well, I'm not sure. Let me call you back."
Now this, I love: She called me because she knew I was expecting to pay $300 out-of-pocket at closing. Yet the numbers were saying I would need to show up with almost $1,600 instead. And she didn't bother to figure out just what constituted this discrepancy before she called. Must've thought I just wouldn't care, really.
Three hundred bucks . . . sixteen hundred bucks . . . what's the difference, right?
But no matter, as she called back shortly. The discrepancies were:
(1) My loan payoff amount was in fact $600 more than the amount originally figured, so it turns out that I was correct to presume this would happen. Too bad no one from the lending office bothered to call and let me know about it.
(2) In order to get your PMI premium dropped, you must owe 80% or less than the home's appraised value. In order to accomplish this, the loan officer set me up to borrow $662 less than we'd originally planned. Too bad no one called to let me know about it. Had someone called, I'd have told them to do it exactly this way. But they didn't call, which means they basically went and spent my money for me. In my world — and at my particular place of work — that is not acceptable.
So those expenses, plus my $300 transfer fee, made up my revised out-of-pocket. I managed to withdraw my $1,562 and get it in the required form of a cashier's check, thanks to some big-time generosity from my employer.
It's now been five days since the closing, and still I'm miffed. I'm glad I had the money readily available when I needed it, but what if that hadn't been the case? I've never understood why it is that abstract and title companies cannot compute the necessary numbers and get closing expenses finalized more than twenty-four hours before a closing. I've never understood why it is that mortgage and lending officers can't seem to get their Good Faith Estimates within a $500 ballpark of the correct amounts.
And I've never understood what could possibly make a phone call (or two) so stinkin' difficult.
By not making a call to enlighten me regarding the $1,262 extra dollars that I'd need to fork over at closing, the lender's office was effectively saying that my one thousand two hundred dollars was not enough to warrant their undertaking the effort to pick up the phone and dial my number.
Fine. Next time I'll probably just forget to call them when we go to buy our newer, bigger, fatter-sales-commission house.
February 25, 2003
Play Great Defense