Mortgage Refinance and Option Pricing
Being a blogger with a contact form, I often receive PR outreach messages. They want me to write about what they are trying to promote. I ignore most of those. Once in a while, I get something worth reading.
Andrew Kalotay Associates is a fixed income analytics and debt management advisory services company in New York. They sent me a special report they wrote for Mortgage Bankers Association, the industry trade group.
A Financial Analysis of Consumer Mortgage Decisions, Andrew J. Kalotay and Qi Fu
Mortgage Rates Back to April Lows
Back in April, I refinanced my mortgage. The timing was good. I caught a low point. The rates went up subsequently. I just noticed the rates have dropped back to the same levels again.
If you missed the April lows, now you have another chance to start calling for refinance rates. The benchmark rate for 30-year fixed should be 5.0%, no point. For 15-year fixed, it should be 4.5%, no point. Those are the rates I see at the lender I used last time. If your current mortgage rate is higher than the rates for a no-cost refi, refinancing will save you money from day one.
I will start watching the rates. If the rate drops another quarter percent, I will refinance again.
Foreclosed Homeowners' Rate of Return
Via a post on the Bogleheads forum, I read this piece of news from the WSJ Developments blog:
Study Finds Underwater Borrowers Drowned Themselves with Refinancings
From that WSJ blog post, I read this research paper: » Read more …
Does a Mortgage Escrow Account Pay Interest?
If you a regular reader of this blog, you probably read that I signed up for using an escrow account for my mortgage when I did my mortgage refinance a few months ago. This is the first time I've used an escrow account. I did it because I didn't want to pay the escrow waiver fee or give up the credit the lender offered to me for my trouble.
When you use an escrow account, you pay a few hundred dollars extra every month on top of your regular monthly mortgage payment. The mortgage servicer holds those money until your property tax and homeowners insurance bills come due. Then they use that money to pay the tax and insurance bills.
I was hoping the mortgage servicer would cancel the escrow account after the loan is sold and the servicing is transferred. But they said no. They won't close it unless I pay them a fee. I will just stick with it.
Mortgage Ecosystem: Direct Lender
My mortgage refinance was completed on June 3. I made my first payment to my new lender today.
I did the refi through National Mortgage Alliance (NMA), which is a division of a bank Georgia Banking Company (GBC). The name on my loan paperwork was "Georgia Banking Company dba National Mortgage Alliance." Officially, I borrowed money from GBC. But at the time I locked my rate in April, six weeks before the refi was closed, I already knew that my loan would be sold to another bank right after it closed.
Let's call this other bank Bank B. When I locked my rate with NMA, NMA also paired my loan with Bank B. The money, for all practical purpose, really came from Bank B. It was only routed through GBC/NMA temporarily. NMA earned the difference between what Bank B offered and what it offered to me.
Mortgage and Home Loan
I kept saying I refinanced my mortgage. Actually I don't have a mortgage. Nor did I ever have one. A mortgage does not have financial terms. Refinancing it makes no sense either.
The word "mortgage" is probably one of those most widely misused words that eventually the misnomer will trump its true definition. When people say they are applying for a mortgage, paying a mortgage, refinancing a mortgage, they really mean they are applying for, paying, or refinancing a home loan.
A home loan is a loan. It has its terms: principal, interest rate, number of months to pay, etc. etc. The home loan is evidenced by a Promissory Note. The Note is secured by the borrower's home. The security document that pledges the home in exchange for the loan is called the mortgage in some states.
Home Valuation Websites vs Actual Appraisal
For my recent mortgage refinance, an appraiser came and did a full appraisal for my home. It cost $500. Here's what the various home valuation web sites said what my home was worth, compared to what the appraised value was:
| % of Appraised Value | Range | |
| Zillow | 120% | 107% – 130% |
| Cyberhomes | 100% | 90% – 115% |
| Bank of America | 107% [1] | 94% – 120% |
| eppraisal.com | 113% | 96% – 130% |
[1] B of A does not give a point estimate. The mid-point between low and high in its estimated range is used.
Mortgage Refinance Completed
My mortgage refinance is completed. I called the servicer for my old mortgage and they told me the loan was paid off as of Wednesday. The payoff amount matched what my HUD-1 closing statement showed except the servicer took $57 from the payoff amount as fees for recording the lien release with the county. They still owe me some money because the payoff amount exceeded the principal balance plus accrued interest. I expect a check in the mail in a couple of weeks.
Before I make the first payment on my new loan, my new lender already sold the loan to another bank. Actually their paired me with that other bank at the time I locked my rate. I expect a letter from this new bank with a new loan number. The whole refinancing process took 40 days from the day I submitted the loan application to the day my old loan was paid off. I'm glad it's finally done and over with.
In retrospect, I think I entered the value of my home too high on the mortgage application for the automated underwriting system. That triggered the requirement for a full appraisal. Had I given the lowest value necessary for my refi, I might have been able to get my application approved without requiring an appraisal or with only a drive-by appraisal.
Signed Mortgage Refinance Documents
I signed the documents for my mortgage refinance yesterday. A recap for the process since the beginning (sorry for lack of updates when I was on vacation):
Week 1. Found a good rate. Filled out application.
Week 2. Locked rate. Signed disclosure documents. Faxed supporting documents.
Is an Escrow Waiver Fee Worth It?
Last week was week 3 for my mortgage refinance. Here's what happened in week 3 with a brief recap for week 1 and week 2:
Week 1. Found a good rate. Filled out application.
Week 2. Locked rate. Signed disclosure documents. Faxed supporting documents.
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