Problems With No Cost Refinancing

by Manny from San Marcos, California, USA

Ask Kate about problems with No Cost Refinancing: Kate, Can you explain how my lender began with a no cost mortgage refinance and surprised me by asking for a few thousand dollars right before closing? I'm trying to get a FHA Short Refinance because I owe too much on my mortgage. I went to my mortgage company about 6 months ago to refinance and they suggested FHA Short Refinance.


Manny continues... The lender told me it was a good deal because they'd pay all of my fees, pay off my 2nd mortgage and even write off part of my loan. I thought, how could I go wrong with this.

Problems With No Cost Refinancing - No Junk Fees

I was still suspicious but got a good faith estimate and really nothing looked fishy.

After a few months the appraisal was done and I felt pleasantly surprised that it went okay. Then they told me I was approved but needed to wait on closing because so many people wanted this loan.

I'll try to make this short but about 2 months later, I got a phone call telling me the refinance was ready to sign and someone would be calling for an appointment.

I was waiting and waiting. Then yesterday, I got a phone call and was asked, "Would you be willing to pay a few thousand dollars for your refinance?" Huh?

My no cost refinancing disappeared just like that? And what's up with "am I willing" to pay a few thousand dollars?

I don't understand how my mortgage company can do this to me. CAN they do this to me? What are my options?

Kate Answers: Problems with No Cost Refinancing

***zz-portrait-left.shtml*** Dear Manny, Whoa.

I'm speechless. Let me recover here a moment.

Okay, I have my breath back. Let's continue. What are your options, you ask. Let's break this down systematically.

I'd start with the mortgage representative and see if you can get a solution. Don't forget to document the conversation in writing.

But if the issue with closing costs is still not resolved, do not assume the mortgage company knows yet that you have been wronged. So next, I'd write a letter of complaint to an individual of authority at the mortgage company.

Not sure what to write? Go here for a sample letter that addresses complaints under the Real Estate Settlement Procedures Act (RESPA): Sample of Written Complaint to Lender.

If you are wondering about RESPA, it is short for Real Estate Settlement Procedures Act which...
"insures that consumers throughout the nation are provided with more helpful information about the cost of the mortgage settlement and protected from unnecessarily high settlement charges caused by certain abusive practices."
Furthermore, the Real Estate Settlement Procedures Act says...
"None of the information collected by the loan originator prior to issuing the GFE may later become the basis for a --changed circumstance upon which a loan originator may offer a revised GFE, unless the loan originator can demonstrate that there was a change in the particular information or that it was inaccurate, or that the loan originator did not rely on that particular information in issuing the GFE. In addition, the loan originator is presumed to have relied on the borrower's name, the borrower's monthly income, the property address, an estimate of the value of the property, the mortgage loan amount sought, and any information contained in any credit report obtained by the loan originator before providing the GFE. The loan originator cannot base a revision of the GFE on this information, unless it changed or is later found to be inaccurate."

Usually problems such as these can and will be resolved at a local level. However without a response, you send the same letter with a cover letter to the California Attorney General. Information for contact the CA AG is found on your state's website.

But hopefully, your mortgage representative can turn your refinancing process back around to your satisfaction. Otherwise, it is my sincere hope someone in a position of authority at the mortgage company will.

Ask Kate and Comment

Manny, one more thing. Is this page is helpful to you? I'd like to hear back from you. You (or anyone else reading this) can comment on Problems with No Cost Refinancing by following the comment link near the bottom of this page. Or Ask Kate a fresh question.

Best wishes,


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Refinancing from FHA to Conventional Loan
by: Mark from Sacramento, CA

Hi Kate,

Thank you for reading my email and hope you have sometime to answer my question.

One of the mortgage broker called and told me that He can convert my FHA loan to conventional loan with NO down payment and processing fee but a closing cost below $2000 because of my loan amount is small of $177,000. So I can get current market rate and get rid off the mortgage insurance from my monthly payment.

Is there any catch or does it create any problem in future if I do that? For example if I want to take a loan against my home in future?

Hi Mark, Kate here...

You can learn a lot by asking to lock in your mortgage rate. If the mortgage broker hesitates, you are probably encountering bait and switch.

You must get a Good Faith Estimate of mortgage closing costs and check to see if there are any prepayment penalties. Learn how to read Good Faith Estimate forms here.

Watch for this type of junk fee, paying too much in points for your interest rate. You can do this by comparing rates with several lenders.

Best wishes, Kate

P.S. Two more thoughts. You can refuse to pay any upfront fees. In case the appraised value comes in lower than anticipated, ask if you will be required to carry conventional private mortgage insurance (PMI) and how much it would raise your monthly house payment.

Click here to add your own comment.

You can also ask Kate about your mortgage at Refinancing Advice The Nuts and Bolts.

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