Contradictory Home Loan Approval Process

by TJ in Texas and by Sharon in California

Ask Kate about a contradictory home loan approval process: TJ's refinance just closed. Or did it? His lender is promising a lower mortgage rate with no closing costs if TJ will turn around and immediately refinance his home loan. But the little matter of Texas state law that prohibits more than one refinance a year is certainly complicating TJ's decision.


Crazy Texas Mortgage Refinance Situation

By TJ in Texas
Crazy Texas Mortgage Refinance Situation

Kate,

Early this year, we refinanced our home in Texas with a cash out refi. There are very specific rules regarding this in TX including the fact that you cannot refinance again for 1 year.

The other day I got a call from the mortgage company saying that there was a problem with our mortgage. Apparently Fannie or Freddie wouldn't insure/buy it (they used two different terms).

They said the easiest solution to the problem was to refinance the loan and that they would pay all costs, lower our rate, and pay our taxes that are coming due.

The whole thing is crazy. We live in the country and traditionally it has been hard to get a cash out refi done because the property is so unique. Is this their way of getting out of our loan?

Should I agree to these terms? Hire an Attorney? Can they call the loan if something odd comes up in this refinance deal. Or can they call the loan if we refuse to proceed?

Thanks! TJ

Ask Kate at Get-Your-Best-Mortgage-Rate.com
Ask Kate answers: Crazy Texas Mortgage Refinance Situation

Hi TJ,

Whew! Yes... Crazy.

And sorry to say, their overly-generous promise of a lower mortgage rate accompanied by no closing costs, even prepaid property taxes, sends up multiple red flags.

I really dislike the thought that you need to hire an attorney. But unless you feel equipped to drag the facts and nothing but the facts out of the lender, the backing of a lawyer could be your safest bet for protecting your mortgage and following the law.

Why Isn't Fannie Mae Backing Your Mortgage

Here are a few things the lender needs to explain.
  • What specifically in your loan is causing Fannie Mae or Freddie Mac to refuse it and how will the lender avoid the same snafu a second time?

  • Are you guaranteed in writing a lower rate and exactly how much lower?

  • What type of loan terms is the lender proposing? Don't assume the lender is looking out for your best interests. Be on the alert for...

    1. Early prepayment penalties

    2. Negative amortization

    3. Sneaky adjustable rates

    4. Looming balloon payments

    5. Hidden junk fees

  • Will they actually pay your property taxes and closing costs from their own funds? Or is this double-speak for rolling fees into the principal balance of the new refinance?

  • What happens if you tell them to take a flying leap? (Of course, I'd word it a bit more diplomatically.)

  • Above all, can you refinance twice in less than 12 months and remain in compliance with Texas state law?

Contradictory Nature of Your Mortgage Lender's Request

There may have been a clause in your loan documents obligating you to show cooperation after closing. But this generally involves a missed signature, not a total refinance. So the more I think about the contradictory nature of the lender's request, the more I lean toward consulting an attorney.

Best wishes and will you please let me know your progress,

Ask Kate

Trustworthy Mortgage Companies

By Sharon in 95667
Trustworthy Mortgage Companies

Is GMAC a trustworthy lender? I am trying to get a very small first mortgage on a home I am buying for my sister and I "thought" I could trust USAA.

But I have since discovered that their mortgage services send all mortgage applications to GMAC. There are hundreds of complaints against USAA's Mortgage services because of their dealings with GMAC.

I don't want to be another horror story on closing day...

Ask Kate at Get-Your-Best-Mortgage-Rate.com
Ask Kate answers: Trustworthy Mortgage Companies

Hi Sharon,

Yes, there are enough mortgage horror stories to go around with adding your sister's loan process to the mix.

Interviewing Your Lender for the Job

You bring up a good point! Just because you apply with USAA or another company of choice, it does not mean they will process your loan application, be involved in the funding, or service the mortgage payments. So keep your eyes wide open and assume nothing.

Asking questions will help you develop a gut instinct. Find out if an additional mortgage company will be processing your application after you turn in your paperwork. Who will be calling with weekly updates? Who will be responsible for your loan on the day of funding?

If the mortgage originator insists he doesn't know... well... decide if that's the person you want to be working with.

How Trustworthy Is GMAC?

Back to your question, how trustworthy is GMAC? They probably aren't too much worse than the other big-box mortgage banks. (But I doubt my statement instills too much confidence in you.)

Here is where I'd turn my attention. A greater part of your sister's loan success will rest with her mortgage originator, that is, as long as the originator is required to walk the loan all the way through funding. Ask friends, relatives, co-workers, and neighbors for the name of an individual at GMAC who successfully closed their last mortgage. Then interview that individual. (You can also apply this same technique to loan originators at other companies.)

However, your sis will be on her own once the loan is sold. So also ask who the most common companies are to service loans for GMAC, besides GMAC itself.

Don't settle for the... well, we don't really know. They do too know. Even when it comes to loan servicing, they can predict the outcome within reason because they probably have a limited number of contracts with servicers.

And if the mortgage originator insists he doesn't know... well... decide if that's the person you want to be working with.

Why Loan Servicers Are Important to Ongoing Mortgage Affordability

You might be wondering why I am placing so much emphasis on loan servicing. Think about this! Not all servicers will modify a mortgage and as we have learned, hardships spring up when least expected, making a modification necessary.

Here's a tip. One way to guard against being assigned an inadequate loan servicer is to take a traditional 30 or 15 year fixed rate without the bells and whistles. The less off-beat your loan product, the slimmer your chances that you'll get a fly-by-night servicer.

Of course, there are no guarantees. So it is prudent to interview lenders instead of merely shopping for the lowest quoted rate. Learn crucial questions to ask a lender before applying for a mortgage.

Best wishes,

Ask Kate


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