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 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.
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.
Mortgage Broker vs Mortgage Lender
My mortgage refinance process is continuing. Here's what happened in week 2 with a brief recap of week 1.
Week 1. Found a good rate at National Mortgage Alliance (NMA). Received quote on GFE. Filled out application online.
Monday 4/27/2009. Rate lock confirmed. 4.5% for 15-year fixed. Lender credit covers all closing cost. Escrow waiver is optional for a fee.
Mortgage Refi Journey Started
I wondered out loud last Monday why I couldn't find a no-cost refi deal for a 15-year fixed rate mortgage at 4.5%. Reader Raghu commented that he got an offer for 30-year fixed at 4.875% with a 0.125% escrow waiver fee.
I called the mortgage broker he referred to me but the broker is not licensed in my state. I also remember that Raghu wrote about his refinance experience last December. I actually commented on a few of his posts back then because he had listed my blog as one of his favorites.
Raghu mentioned in his posts last year that he went with National Mortgage Alliance (NMA), which is an Upfront Mortgage Lender certified by the Mortgage Professor. NMA lends in all 50 states and Washington DC. When I checked NMA's no-cost refi rates, I was offered 30-year fixed at 4.875% and 15-year fixed at 4.5%, both with a one-time 0.125% escrow waiver fee and $120 in document preparation and government recording fees.
Waiting For a No Cost Mortgage Refinance
Ever since late last year, there have been numerous news reports about the mortgage rate going to 4.5% or the mortgage rate reaching historical lows. The headlines read Treasury mulls plan to lower mortgage rates to 4.5% (CNN, 12/4/2008), Mortgage Rates Fall to Another Record Low (Fox, 4/2/2009), and so on. Then how come I still can't refinance my mortgage?
I kept asking my trusted mortgage broker about refinancing but he kept telling me "rates are not yet lower than what you have now." In case he's no longer able to get competitive rates because the banks are cutting off mortgage brokers, I also tried getting rate quotes myself directly from the banks.
Pentagon Federal Credit Union (PenFed) used to have good rates and no lender closing cost. Now they added a 1% origination fee on all their fixed rate mortgages. That totally killed the deal. Right now I can see 4.5% rate from a few places but they all require about $3,000 in a combination of points, fees, and closing cost.
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The Little Book of Safe Money by Jason Zweig
