Tagged with " US Bank"
7 Dec
2011

Asking US Bank About HARP Refinance

Bank of America holds my first mortgage for $148,000 at 6%. US Bank holds my second mortgage for $44,000 at 8.49%.

Story Recap

If you’ve read past entries, you’ll know that I refinanced with US Bank 5 years ago at that rate because they offered me a loan that would allow me to refinance through US Bank when interest rates dropped, without closing costs. Then the economy crashed and I was stuck with that rate, because I had no equity and they said “No” on the refinance when rates dropped. Adjusting that loan is imperative, but it may not be possible, so I continue to focus on the first loan via the HARP program.

At the end of November, Bank of America offered me  5.375% interest (currently at 6%) with $3000 in closing costs to refinance under the new HARP program, which did not fit with the 4-4.5% average interest rates we’ve all been hearing about.

I went to US Bank to see what they would offer on either my first or second mortgage.

Interest Rates Over 4.5% Should Be Investigated

US Bank indicated that there was absolutely nothing they could do about the 8.49% loan I currently have with them on my second mortgage. That is the standard response I’ve gotten over the last 5 years. But they did think that Bank of America was in error for the interest rate they offered, possibly due to not having received the new guidelines. However, Bank of America said they had received them, and 2 weeks before the guidelines were distributed, Bank of America turned down my refinance. The lender at US Bank said that he thought he could get me 4-4.5%.

Appraisal Needed When Refinancing With Another Lender

I could get a lower interest rate with US Bank, but the lender told me that I would need an appraisal at the cost of $450. I reminded him that with HARP 2, an appraisal is no longer needed. He pointed out that the appraisal process is waived only if the loan-holder refinances with the original lender.

In the official HARP Q & A document, also available for PDF download in HARP Basics, appraisal is contingent on AVM (automated valuation model), which is extracted from Zillow.com or your home’s Estimatesd Tax Value. (And possibly other sources that I have yet to learn about.)

Cap or No Cap?

The US Bank lender also told me that there is a 105% loan-to-value restriction in place in order to qualify with another lender.

If my appraisal come back at $145,000, I would be approved for a $152,000 loan.

It’s unlikely the appraisal would come back that high, but that is approximately the minimum appraisal amount I would need in order to cover my first loan.

If my appraisal came back at $135,000, I would only be approved for a $141,000 loan: $8,000 less than I would need.

The lender I spoke with at US Bank discouraged me from doing the appraisal, and told me I should return to Bank of American and reattempt with a different person there to try to get a better rate.

Official HARP Fact Sheet and US Bank Qualifications Discrepancy

Below is an excerpt from the HARP Fact Sheet, available for PDF download in the HARP Basics section of this blog. The Fact Sheet indicates that the program will continue to be available for loans with LTVs above 80%. Where did the 105% LTV come from that US Bank quoted me?

What I discovered was that the 105% LTV is only a requirement when the new loan is an ARM. Was the US Bank lender attempting to put me in an ARM?

1 Nov
2011
Posted in: My Ongoing Story
By    Comments Off on A Loan Deferred

A Loan Deferred

Losing the ARM

In 2006, the ARM interest rate was going up, up, up, and after several months of waiting it out in hopes of an interest decrease, (and calling my own and other mortgage companies every couple of weeks about possible solutions), I started to consider taking a high fixed rate mortgage. There wasn’t much else to do, it was either get it fixed at a high rate, or watch it continue to go up past 10% in the ARM.

US Bank

US Bank was ready and willing to solve my problems. While the lowest interest rate they could offer me was 8.49%, they boasted that as long as I continued to keep my 2nd mortgage with US Bank, that I could refinance at any time with no closing costs. I asked what the catch was, and they said “No catch. Refinance with US Bank at any time with no closing costs.”

Me: “So when the interest rate drops to 6%, I can walk in to US Bank, and refinance at that rate, no closing costs?”

US Bank: “Yes”

If I prepay the whole loan, or move to another lender, I have to pay a penalty of 1% of the original loan amount with a minimum of $250 and a maximum of $500. But why would I ever want to move my loan to another lender if I could refinance any time with no closing costs? So I refinanced at 8.49%, a 15-year loan for $564/month. The intention was to refinance as soon as rates dropped; they couldn’t stay that high forever.

New total monthly mortgage: $1800
Initial monthly mortgage: $1150

I’ve been paying this $1800 monthly mortgage for 5 years now, and have never missed a payment.

When interest rates finally came down a couple of years ago, I visited US Bank for a refi, confident that I was finally going to get my mortgage back under control. However, now refinance was not an option because I had no equity, due to the crash. My house was worth much less than what I bought it for. Possibly even $40,000 less, give or take $20,000 dependent on the Zillow estimate or various bankers I spoke with.

I realize that this makes perfect sense to a financial institution. Who is going to refinance a loan that does not have sufficient collateral?

I’d like to offer another perspective on this issue.

Do As I Say, Not As I Do

I bought my house for $0 down. I had no collateral and no co-signer, and the banks were more than happy to lend me money when the bubble was getting bigger and thinner. I was a loan risk, but I didn’t know it back then. They encouraged me to dive in and I did. It was my first house and I’d never taken out a loan before. 6 years later, I am making 1/3rd more income than when I bought the house and worked at an ad agency. I’ve had to make this happen through hard work and long hours, mainly just to pay my minimum mortgage requirement after the refi.

  • My house is worth less.
  • I make 1/3rd more income.
  • I’ve never missed a payment.
  • I never had collateral for the initial loans.
  • I never put any money down for the initial loans.

It’s no more of a risk now then it was when they gave me the loan in the first place.

The burden falls to the people who have these high interest rate loans, even though most of us never had collateral in the first place, but were given loans by the banks nonetheless. I’m happy that I was able to purchase the house, and that I was able to make a life to sustain it as best I can as a result of crash of the housing market (in retrospect, only because I was laid off and worked as hard as I could as a freelancer to make ends meet). My concern is that they gave me a loan with no collateral and $0 down, and now I have no collateral and no equity, just like I did back then, the banks screwed up the housing market, and I still can’t refinance so that I can live sustainably.

If I didn’t have equity then, why is it that I am not allowed to refinance because I still don’t have equity, and they are already the owner of the loan and my home? If I don’t have equity, how is it more of a risk for them to refi? I am already a risk, and a higher one if I can’t sustain the $1800 payments indefinitely. It’s not a risk to them at all to refinance the underwater home that they already own. It’s just not as profitable.

I guess that is what the HARP is for, but I’m still not able to access that program to date.

How Much More Can I Give To Thee, O Bank of America and US Bank?

I’ve invested $121,200 total in payments over the last 6 years for a house that I bought for $200,000 and may or may not be worth at least $50,000 less, give or take $20,000.

It’s possible that I could do this for another 5 years (totaling $242,400 in payments), and still have no equity, or just be starting to build equity. That is the thought that woke me up. As busy as I am trying to work hard enough to bring in the amount I have to bring in to make ends meet, I have to start working harder to understand why my mortgage company and my bank won’t help me out of a situation that they are responsible for in the first place. And if I am going to put all of this work into figuring out this program that is supposed to benefit people just like me, I may as well share the journey so that others can be helped along the way too.