HARP Refinance: Surprise Cost to Lock a Mortgage Rate
by Lori in Pennsburg, PA
Ask Kate about HARP loan refinance and the (surprise) cost to lock a mortgage rate: Meet Lori who was informed by her lender of an unexpected $750 fee to lock in her interest rate. Lori explains further, We don't know anything about refinancing, especially through HARP. Does this all seem legitimate in the ways of fees? It just seems like an awful lot.
Ask Kate: HARP Refinance and Surprise Cost to Lock a Mortgage Rate By Lori in Pennsburg, PA
My husband and I are about to refi under a Harp Program...
Our interest rate was stated from our Lender at 4.008 percent.
However, to lock this rate in, our lender wants to have a credit card payment of $750. We didn't know there would be a fee to lock in a rate under HARP.
Our lender had told us up front that the closing costs would be placed on the balance of the new loan, bringing the new balance up $3000.
We don't know anything about refinancing, especially through HARP. Does this all seem legitimate in the ways of fees? It just seems like an awful lot.
Also, the lender wants to do everything through electronic documents via email and a portal. Which is fine, however, I am a little scared to send all my confidential information via a portal...
Any help you can provide would be greatly appreciated!
Kate's Answer: HARP Refinance and Surprise Cost to Lock a Mortgage Rate
A little background first. HARP refinance is a loan program of Making Home Affordable, a joint effort of the US Treasury and HUD departments in response to the housing crisis of 2008.
The Dodd–Frank Act of 2010 (all 2300 pages) was also a product of the housing crisis and takes the cake for the most imposing regulatory reform since the Great Depression. Its mission, in part, is to save borrowers from predatory lending practices.
Out of the Dodd-Frank Act emerged another layer in our government, the Consumer Financial Protection Bureau (CFPB), which one of my readers has dubbed the Fangless Mediator.
However five years later, CFPB reports that mortgage complaints are still alive and well. Thus Buyer Beware
remains a worthy warning in spite of regulatory intervention.
I maintain that the best protection to homeowners is to understand how lenders think. To learn what makes them tick. Thus the reason for my website.
Now back to your three questions...
1. Am I Paying Too Much for a HARP Loan Refinance
It's impossible for me to determine if $3000 is too much to pay in closing costs because there are many variables that can drive up or reduce cost. As an example, interest rates can be increased to eliminate all closing costs. Conversely, buy downs for lower rates can send closing costs well over 3k. Yet both may be worthy plans depending on the borrower's goals.
But hopefully, when you shopped for your HARP refinance, you compared closing costs among different lending institutions on the same day. If so, go back and compare fees from other lenders to the Loan Estimate from your lender of choice. If they all ran about $3000 for the similar rate, your current lender isn't far off.
By the way, to avoid comparing apples to oranges, Loan Estimates should be based on the same interest rate, locked for the same period of time, and issued on the same day. Comparing today's quote from Lender A to last week's quote from Lender B does not take into account changes in the market. Go to How to Compare HARP Mortgages and Avoid Borrower Remorse
for more help.
2. Are These Legitimate Closing Costs and Lock-In Fees
First of all, you should know there is not a required HARP fee to lock in an interest rate. Neither are there set HARP interest rates or closing costs. Each participating lender can charge as they see fit (within reason) for HARP interest rates as well as fees. See Determining HARP Interest Rates and Understanding Guidelines
That being said, if the $750 is a flat fee for locking, vs points, it should have been disclosed upfront on your Loan Estimate form. It's too late now for the lender to add it. Period. End of discussion. If your loan originator argues this, go straight to a department supervisor and keep working your way up the company ladder until the fee gets removed.
But if you are locking your interest rate after the Loan Estimate was issued, the cost of the rate, aka discount points, could have increased by $750
. Clearly, that is the nature of interest rates and a risk that's taken when rates are not locked at time of application.
3. Can I Choose How to Send Paperwork to My Lender
If sending your financial documents electronically gives you the jitters, by all means tell your lender. You have the right to request another method if you are leery of using an online portal. But whether you choose snail mail or priority mail, send a complete set of requested documents and make sure they will arrive on time.
One Last Word on Choosing Loan Originators
If you do not feel you're getting a straight answer on the lock-in fee, you have the right to cancel your loan application and go to another institution.
If you decide to switch lenders, first do your homework to determine changes in the cost of refinancing. You'll also want to peruse your loan documents' fine print for application and lock cancellation fees
as well as the loss of upfront deposits.
There is always a risk leaving behind a loan approval but in some cases, the peace of mind is worth the risk.
Lastly, go here for Three Ways to Compare Mortgage Lenders and Interest Rates
to get your lender re-shopping started off on the right foot.
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