Posted by HisHughness on 1/11/11 11:52pm Msg #368165
I encountered something at a closing yesterday...
...that I'm still trying to puzzle out.
Yuppie power couple, both with advanced degrees, house with three car garage, all the other trimmings. They're refinancing a 30-year mortgage (don't know how long to payoff) into a 10-year.
The note is in almost exactly the same amount as the payoff on the existing loan. Escrow contribution is $5,000; fees total $5,000. They're told to produce a $10,000 check. I show them their settlement costs of $10,000 (all round figures), point out that the impound contribution is actually their money and money that they would have to pay with or without refinancing, so their actual costs are less than half the $10,000.
Wife says, "Wait a minute. We were told this loan wouldn't cost us anything." I say, "Hmmmm," and shut up. She calls the loan officer, who tells her that the real story showing no cost to her is on the second page of the HUD. She looks at the second page, which lists $5,000 in origination fees, TC fees, etc., and says, "Okay," and proceeds to close. giving me the $10,000 check.
What am I missing here? They paid off their existing loan through the new note. They paid much of their tax and insurance burden for 2011 through the contribution to their new escrow account. And then they paid $5,000 more. How can that be a cost-free loan? Am I crazy, or did a loan officer just scam someboy who should know better?
Reply by jba/fl on 1/12/11 12:11am Msg #368167
I think you are crazy and I think the LO told them quite a story and yes, they should have known better but the bought the story along with the new loan.
You are just a wild and crazy guy!
Reply by JanetK_CA on 1/12/11 12:13am Msg #368168
I've had nearly the equivalent situation and I'm always dying to know what the LO told them.
What's the impact on their monthly payments? Is it possible that they got enough of a lower interest rate with the 10-year amortization where it's going to save them more than the $5,000 would be worth over time? Just grasping at straws here.
Reply by Susan Fischer on 1/12/11 12:33am Msg #368169
You're not nuts, Hugh. I've given up trying to figure the
benefits to some borrowers - similar circumstances, and others, notably Reverse Mtgs.
Yours is one of those stunners - that they'd pay five grand to do what seems to be their goal - a 10-yr payoff - that could be accomplished by just upping their payments. Was it a killer rate that justified a ten grand depletion of ready cash?
Reply by jba/fl on 1/12/11 12:39am Msg #368170
Re: You're not nuts, Hugh. I've given up trying to figure the
I'm w/you on this one - just put that money to pay down and adjust how much they pay every month by whatever they want and escalate to that final payment. Keep the payback period longer just in case of economic meltdown either might experience. Heck, they could have done $15K today instead of that loan.
Different kind of smarts according to my dad: book learning and savvy street smarts.
Reply by Susan Fischer on 1/12/11 12:48am Msg #368172
Um hm. That mysterious 'loan origination fee' - I'd
like to see a 'borrower's benefit' explanation for that cool 1% off the top...
Reply by Pat/IL on 1/12/11 1:21am Msg #368176
Re: Um hm. That mysterious 'loan origination fee' - I'd
Depending on how far they are along in paying off that 30-year and a bunch of other factors, the ten year could be a good option. The rates I see in the papers for a ten year are regularly 3/4 percent under that of a 30-year.
Any refunds to the borrower would be listed on the first page of the HUD, not the second, so the LO's comment about that makes no sense at all. But, the HUD should have reflected the costs as stated on the GFE. That's why HUD requires the comparison between the GFE and the actual costs on the HUD.
The impounds, as you stated to the borrowers, are what they are. The lender is subject to laws limiting the allowed cushion. The origination fee has a zero tolerance for change, as do the rest of the lender fees. The third party fes, combined, have a 10% tolerance. These kinds of surprises aren't supposed to happen at the table anymore. It's late, and I must be missing something obvious. So, I'm hitting the cancel button and going to sleep. Good night.
Reply by Lee/AR on 1/12/11 3:03am Msg #368177
What you're probably missing is LO used to work for Countrywide.
Reply by ReneeK_MI on 1/12/11 7:28am Msg #368182
If I had to venture a guess...
It was the Standard Anthem of No Costs, a popular tune sung by many L/O's, and it goes like this (sort of a waltz but very fast, like a polka):
You're paying out $10,000 BUT $5,000 is your taxes AND the other $5,000 you're paying is coming BACK in the escrow refund from the existing loan AND of COURSE you have to pay that interest adjustment but that's not a fee AND REMEMBER YOU GET TO SKIP ONE MONTH'S PAYMENT so you see you're saving a lot of money! you're saving saving saving you're saving so much money!
Reply by BobbiCT on 1/12/11 7:38am Msg #368186
LOVE this Renee, Hugh ..
Hugh,
You're not missing a thing. "Well educated," yuppie professionals do NOT want to show their ignorance; therefore, when told it's all explained on second page: They read it and "agree," not having a clue.
People in my rural, learn-from-experience education neighborhood would QUESTION the LO in depth with paper, pencil and calculator in hand. They'd figure out $5k tax escrow swap is a wash, but "what about that other $5k." Also, they'd never trust a LO that states, "you'll get it back after the closing." Maybe in the high-flying subprime days this line would be believed (and kickbacks often happened), but not today.
Reply by Linda Juenger on 1/12/11 8:23am Msg #368194
Were they skipping a payment? I'm seeing payments due
in March which means they get that extra money for Feb payment and some haven't made their Jan payment either.
Reply by Susan Fischer on 1/12/11 10:26am Msg #368215
Linda J, that's not 'extra money.' The reason for the first
month's delay is that you can't collect interest that hasn't been earned. The interest has to accrue, so we're always paying for last month's interest, so it's not really "extra" money at all.
Reply by ReneeK_MI on 1/12/11 11:19am Msg #368227
Rule #1 - there are NO free lunches
As Susan explained, interest is paid in arrears. The only 'skipped' portion is (usually) one month's principal - generally that's not saying much, for the first payment on an ammoritized loan. As for having 'skipped' the January payment - that would be on the old loan, and trust me, they're paying it, plus interest (in the payoff).
Nobody give money away.
Reply by Linda Juenger on 1/12/11 12:16pm Msg #368238
Susan, I realize that, but some borrowers think that just
because they don't have to make a payment for a month, they are getting a good deal.
Reply by ReneeK_MI on 1/12/11 11:25am Msg #368229
Bobbi - lol, you nailed it!
The LAST person who'd own up to having their head spin from a quick rendition of this song would be the stereotypical Yupster.
With one exception - an engineer. =)
Reply by HisHughness on 1/12/11 11:37am Msg #368232
Hmmmm...interesting that you would say that, Renee
The husband was an engineer.
The wife was an attorney.
Reply by ReneeK_MI on 1/12/11 2:37pm Msg #368258
Paper covers rock, scissors cut paper,
attorney wife trumps all. =)
Reply by jba/fl on 1/12/11 7:38am Msg #368187
That's a real heel-kicker-upper! LOve it! n/m
Reply by HisHughness on 1/12/11 11:12am Msg #368222
Renee, I was you writing songs for my band...
...the Stamp Scamps.
Reply by pan/nd on 1/12/11 9:16am Msg #368205
Oh Hugh,
It's just you.........
you've been spending too much time in the liquor store and the bass boat.
It's all very plain and simple ....anyone can figure it out.
First they take the escrow balance and subtract it from the amount owed on the new loan
minus the difference between the new loan and the old one---add in the loan origination
fees times 2 because there are two borrowers...subtract out the paid taxes---add in the
cost of dry ice and the distance to the moon and say..."THERE".
Your post is living proof the the economic downturn didn't get rid of all the flummoxing LO's
that are out there.
There are at least two left....the one you encountered last night and the one I encountered
last night.
Reply by MW/VA on 1/12/11 11:41am Msg #368233
I've seen that sort of thing also. It amazes me how sales people operate. I have encountered it in auto sales and refer to it as the shell game (they put the nos. on the table, then move them around until you're so confused you don't know which end is up). IMO it doesn't matter how smart or educated you are, they can still get you.
