So You Want to Refinance: An Insiders Guide to Refinancing Adjustable Rate Mortgages and Home Loans

By Kristina Benson

“A must-have for any home owner looking to refinance” –Terri Williams, Homeowner

Are you paying more than you need to? In this book a mortgage lending insider reveals her answer to this question - and more - in her best selling So You Want to Refinance. If you are baffled by the dizzying array of mortgage companies, sales pitches, and loan products, this book is for you.

• Language: English
• Publisher: Equity Press
• Release date: Apr 9, 2011
• ISBN: 9781466075337

Book preview

SO,

You Want to Refinance Your Home Loan?

Kristina Benson

Copyright 2006 Equity Press

Smashwords Edition

Smashwords Edition, License Notes:

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So, you want to refinance your home loan?

ISBN1-933804-63-7

Copyright© 2006 Equity Press and Kristina Benson all rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means (electronic, mechanical, photocopying, recording or otherwise) without either the prior written permission of the publisher or a license permitting restricted copying in the United States or abroad.

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CONTENTS

Chapter 1: The Industry

Chapter 2: So You Want to get a Home Loan?

Chapter 3: Special Circumstances

Chapter 4: What Type of Loan is Right for Me?

Chapter 5: Selecting a Company & a Loan Officer --RED FLAGS

Chapter 6: YOU

Chapter 7: Initiating the Refi

Chapter 8: The Appraisal

Chapter 9: The Processor and Underwriter

Chapter 10: The Final Approval

Chapter 11: The Signing

Chapter 12: The Paperwork is Signed, Now What?

Afterword

Glossary

Chapter 1 The Industry

So, you are interested in purchasing or refinancing? You are far from alone. According to mortgage giant Freddie Mac, U.S. households cashed out an estimated $480 billion in home equity between 2001 and 2003. This, by the way, is more than two-and-a-half times the equity cashed out from 1993-2000.

Forty-five percent of homeowners who refinanced between early 2001 and the first half of 2002 used the refinance to take out cash, and 74 percent wound up with more years on their mortgage.

By mid 2004, Americans owed $766.2 billion on home equity loans and lines of credit --more than twice as much as in 1998, according to the Fed.

Why did so many people refinance? There were a couple different reasons but one of them is credit card debt. In late 2005, the average American carried approximately $10,000 in unsecured debt.

And, another reason for refinancing was to get out of an adjustable rate mortgage that kept climbing ever-higher every month: between 2002 and 2005, 30% of new home loans were adjustable. So between 2005 and only God knows when, hundreds of thousands of Americans will need to refinance yet again in order to have a manageable mortgage payment.

A concise way to summarize these statistics would be to say that Americans have decided that their home can act as their own personal ATM machine. They are going shopping with credit cards, paying high interest rates on their purchases, getting sick of the growing balance on their credit cards, and paying off their debt with their equity. To get the lowest payment possible, they often choose (or are talked into) adjustable rate mortgages that start low, but end up rising, and then once again, they have to refinance.

Meanwhile, balances on their homes are going up, rates are going up, and home value is going down. People who took out 100% LTV interest only adjustable 40 year loans may very well find themselves upside down on their house when the market cools completely. So basically, they will owe more than their home is worth, have rising mortgage payments, and have no way of paying down the principal balance on their homes. In the lending industry, we call people in that situation Completely Screwed. Doesn’t that sound fun? So fun!

If you're tired of this cycle of refinancing only to be talked into a product that leads you to refinance again not two years later, if you feel like you might be in a risky loan that will soon put you in the rank and file with the Completely Screwed, or if you simply want to walk into your refinance or purchase armed with knowledge to give you the best deal possible, this book is for you.

And if your credit score puts you in what the mortgage industry terms kindly as sub- prime lending, this book is definitely for you. The sub-prime lending industry has grown exponentially to service all of these serial refinancers, and has escaped close regulation as a result. Inspires you with a lot of confidence, doesn't it? In Southern California, the heart of the lending industry, there is a broker shop on every corner, teeming with ignorant 22 year old boys calling themselves fancy titles like loan officer credit manager account manager or loan consultant. They get paid based on how much they charge the borrower, and how large the loan amounts are. This culture of economic incentive has led to a corporate environment of mendacity and moral turpitude all around.

Your home is probably the biggest financial investment you have, and will ever have. And not only is it an investment, but you live in it. It is the roof over your head. Putting yourself in a crappy loan so some schmuck loan officer can get a bonus for selling a certain product is probably not the best idea.

This book will teach everyone, but particularly the sub-prime borrower, how to navigate the often complex and labyrinthine process of getting a home loan. You'll learn about loan products and the real estate industry from someone who doesn’t stand to make a significant amount of money on whatever decision you make. You will learn what sales techniques you will be confronted with, how to smell a lie, and what to do in the event that your loan gets screwed up.

In short, the money you spend on this book could save you many thousands down the road. It will help you to prepare for your refinance by sharing with you techniques to improve your credit score, letting you know what paperwork you can expect to need, and what kind of loan you can realistically qualify for-pretty useful information when it comes to making a decision about your greatest asset.

Who I am and why should you listen to me is probably a question you’re asking. I was a loan officer for three years, from 2003 to 2006. I worked for sub-prime broker shops and a gigantic direct lender. And before that, I spent three years managing the settlements of mortgage backed products as they were traded on the bond market.

When I first started in the business, I was a top tier salesperson. I banged out ridiculous numbers and charged exorbitantly. Management deliberately kept loan officers ignorant about the market, interest rates, loans, and lending laws, so I took it upon myself to learn on my own. The more I learned about the market and about the products I was selling, the lower my sales became. The relationship between my knowledge and my income were inversely proportional and my sales went into a gradual downhill slide.

The industry went downhill with me in lockstep. During the golden age of the mortgage industry when I first started, 22 year olds were running around driving $100,000 cars to their $1,000,000 homes, spending cash as though it grew on trees, behaving as if this fountain of money was never going to end. At the time, it was easy to sell a loan. Rates were low, values were high, and it was gravy all day. As rates began to rise and values began to taper (a trend we are still seeing but have not even begun to feel the effects of) it became more and more difficult to make sales and to even create loans with benefit.

In this potent environment of greed, youth, ignorance, and money, fraud and dishonesty became the rule rather than the exception. Loan officers, management, and other players in the industry regularly adjusted appraisals to inflate value or minimize flaws to the property, doctored rental agreements and bank statements to exaggerate the borrower’s income, whited-out and wrote over unfavorable statistics in HOA certifications, and signed borrowers’ names on official documents.

All of these creative approaches to doctoring files (euphemistically referred to as arts and crafts) did indeed increase the number of borrowers that qualified for loans, however, it was still tough