At long last, my latest principal residence mortgage refinance is now closed! Things were looking very dicey towards the end after PG&E threw a couple grenades my way that hit my credit score by ~100 points due to a $8 non-payment from three years ago by my tenants. Alas, the Humvee was able to withstand the blast from corporate evil and make it back to home base!
The mortgage loan refinance started on January 20, 2015 when I overheard a colleague say he just locked a 5/1 ARM for only 2.75%. Ehh? I had just refinanced my own 5/1 ARM in the fall of 2014 to 3.125% from 3.625% and I wanted to dance the mambo too! I incredulously gave Citibank a call to see if I could get the same offer as my colleague with all fees baked into the price and they said absolutely! In fact, the very next day, my banker called me to say that they could give me 2.625% with all fees included. Yeah baby, yeah!
THE MORTGAGE LOAN REFINANCE SAGA
Having been a Citibank Gold client for over a decade, I had absolute faith my mortgage refinance would go through. After all, just three months earlier, I had closed on my mortgage refinance with them. They had all my documents and access to all my accounts. Easy peasy right? What could go wrong?
Mortgage Loan Saga: The First 30 Days
30 days had passed since locking the loan before I got any requests for documents. The usual suspects were requested:
* 2011 W2 form
* Latest 2 pay stubs
* Printout of assets from bank accounts or only one if it had over $250,000
* Home insurance policy
I actually thought they didn’t need any of this since they waited 30 days to contact me for this information. Not a problem, I sent over all the documents via their interoffice mail since my fax machine was broken.
During this time period, I received three Good Faith Estimates (GFE’s) that reviewed the terms of the loan, and two credit score reports that showed me in the 790-800 range, as expected since that’s what it was now 4.5 months ago during my last refinance.
Mortgage Loan Saga: Days 30-60 – A Bullish Datapoint
After sending in all my documents, I heard nothing from Citibank for the next two weeks. Not in a rush, I went about doing my own thing until I realized, wait a minute. Don’t we need to do yet another appraisal since an appraisal report is only good for 90 days after?
I shot my Citibank representatives an e-mail asking about the appraisal, and they said I would need one, and that they’d get back to me. I asked them why they were taking so long, and they said they were backed up due to all the purchases going on. Bullish indicator! If you are putting in an offer to buy a home, you generally want to make it quick and painless for the seller to accept. That usually means a 30-45 day close maximum. I can certainly understand Citibank prioritizing purchase loans over refinances.
Citibank finally got back to me around day 55 and confirmed that an appraisal is needed. Great, another
$750 $860 out the window, but good thing Citibank was handling the cost. The appraisal is always the tricky part because nowadays, a bank will only loan up to 80% the value of the house e.g. 80% LTV = $800,000 loan for a $1,000,000 house. I wasn’t too worried since the refinance before, my LTV was at 60%, but one never knows. I wrote a post entitled, “Sweet Talking Your Home Appraiser Pays Off“, which provides some tips for those who are worried.
It turns out that the home appraiser didn’t even have to come to my house this time! The appraiser just sent in an electronic report to Citibank, appraising it coincidentally at the same amount from 4.5 months ago! What a great job! If you want to make bank, become a home appraiser! You’ll at least make multiple six figures no problem, so no complaining all of you who make less!
Mortgage Loan Saga: Day 60-75 – Nothing Is Happening!
Although Citibank is paying the $860 home appraisal fee, I am really paying the fee indirectly through a higher rate. There is no free lunch in mortgage refinancing. When they say all fees are included, the bank has already baked in their own margins. Hence, those people who feel guilty about collecting unemployment insurance even if they have the means, don’t feel guilty! Just know that your employer already baked in your salary to account for the unemployment insurance they have to pay. Collect, and collect with pride!
Another two weeks have gone by, and now I’m getting worried. It’s day 75 and in this time, I get three more Good Faith Estimate reports and another credit score update. The process is killing trees inefficiently! I guess sending the GFE’s is a good way to protect the client, but during these past 75 days, the rate and the loan amount have not changed, so I don’t know why they kept on sending me these papers. By deduction, I realize that it’s their fees that kept on changing. Interesting.
Mortgage Loan Saga: Days 75-85 – Shit Is Hitting The Fan And Splattering!
By day 76, I am totally miffed at WTF is going on with my mortgage refinance. The 10-year yield has moved up from 1.85% when I locked, to 2.3% and I was getting worried. Is my mortgage refinance really not going to go through? I begin to wonder. I kept on thinking what a waste of time this all was, and started preparing for the worst, continuing with my 3.125% rate.
My mortgage loan officer contacts me and says I need the following additional papers for the underwriter:
* Home insurance statement with contact person and loan number
Fair enough, but why didn’t you ask me for this in the first 45 days?
At around day 80, I finally get an urgent call from my mortgage officer at work. I so happened to be golfing that day, and my assistant said that I wasn’t working (that day). My mortgage officer took it to mean that I was no longer working at my job and e-mailed me with a title, “URGENT: Please Respond Immediately!” Funny, alas, they are feeling the sense of urgency because there’s only 10 days left until we lose the incredible 2.625% lock!
My mortgage officer picks up the phone and says, “We can’t go through your mortgage refinance if you are no longer working!” What the hell? Just because I take the afternoon off to go play golf doesn’t mean I’m no longer working. I’m working on my 2-iron stinger, lady!”
She calmed down, and brought up the new news of the devastating 100 point credit score hit due to a highly delinquent payment from PG&E Utility from 2009. You can read about the entire story in “Corporate Greed By PG&E Killed My Friend’s Family And My Credit Score“.
After 80 days I was now pissed off for them waiting so long to get going. Amanda implied in our conversation that the mortgage refi was all but dead. I wrote her a long e-mail back saying that this was wrong of them to do. I’ve been a good client for over 10 years, have never been late, have referred them over 30 customers, and have enough cash in the bank to pay off the entire principal loan for goodness sakes! How could the 2009 PG&E mispayment come up only now, and not during the last refinance in 2011?
A senior mortgage officer stepped in and assured me that the mortgage refinance would go through. I spoke to PG&E and told them this delinquent payment penalty was egregious and they agreed to send me and my bank a “Clear Credit Letter” stating that the delinquency is removed and they have contacted all credit agencies to remove the penalty. The senior mortgage officer even called PG&E to expedite the process. Good job Citibank!
Mortgage Loan Saga: Day 85-90 – Aloha Emancipation
Even though I knew we were closing in on the 90 day limit for closing, I decided to take advantage of a Hawaiian Airlines three-day sale and buy a round trip ticket to Honolulu for $328, including tax and fees. Is this irresponsible of me? No. A little stubborn and risky? Yes.
I wasn’t about to let this mortgage refinance saga derail my plans for having fun. Remember, making money and saving money are a means to a better lifestyle. Sitting around twiddling my thumbs in San Francisco waiting for Citibank, while I could be in Hawaii playing golf and surfing doesn’t make sense.
I told my mortgage officer and her boss that I’m off to Hawaii, and that if they want me to sign the papers, I will do so when I get back in a week. Alternatively, they could send a notary to my place of residence in Hawaii to get the process done . Eelected not to wait another week and hired a notary for $175 at their expense to meet me at my place! Now that is service!
Mortgage Loan Saga: Day 90-97 – Head-fake Coco Head
When the notary showed up, she showed me my settlement statement and asked for a cashier’s check for the interest due for the rest of the month. What? Nobody from Citibank informed me about needing a cashier’s check and this amount of money. Well guess what? There are no Citibanks in all of Hawaii! There are also no Bank of America’s or any other bank for that matter. Only Hawaiian banks for protectionist reasons.
I can’t easily wire transfer online (figured out how later), or get my private banker to do it because I’ve got to fax them (not e-mail) a signed letter with all instructions. I’m not about to spend another hour of my time going to Kinko’s or somewhere to do this.
Instead, I told Citibank and the title company they’d have to wait another 5 days until I get back to San Francisco before they can officially close the loan. The closing officer at Citibank dropped the ball by failing to review my final statement with me over the phone or on e-mail, and indicate the necessary cashier’s check I had to bring. Details people, details!
By this time, I was just laughing. What’s another 5 days? I thought to myself. Time to make them sweat given the wait and fear of things not going through starts messing with your head after three months for the borrower. In the end, it took 97 days to get my mortgage loan refinance completed. I should be getting some checks back from Citibank due to overage charges. I’ll then need to set up the account online to do auto-transfer so I never have to think about paying.
TAKEAWAYS FROM REFINANCING A MORTGAGE LOAN
We’ve come a long way since the credit freeze of 2008-2009. Here’s a recap of where we are, and where we’re going:
* Banks are lending again, but they are being encumbered by new government rules and regulations which are there to protect the borrower. The 10 Good Faith Estimate documents is the most obvious example where things have changed. In the past, I only got one. Speaking to the notary, it turns out that our magnificent government instituted this GFE rule in 2011, so that anytime even a penny of fees is changed, they must send a new multi-page document via FedEx/UPS. This is good for consumers, as hopefully we consumers read the GFE’s and point out discrepancies.
* Before the 2008 financial crisis, a mortgage refinance would take 30-40 days on average. Soon after the financial crisis in 2010, mortgage refinances were taking 50-65 days. After speaking to several friends who are also refinancing, and going through my own experience, it looks like mortgage refinancing is taking 80-90 days +++. Amanda, my mortgage officer said they are super backed up, and a large portion of their refinances are taking well over 90 days! One friend, who is refinancing with Citibank said he’s in month 7 of his mortgage refinance!
* A loan-to-value of 80% is industry standard now. I don’t know any banks who are lending more than 80% of the value of your property. This is good for all of us in the long run, as it weeds out donkey’s who over leverage, blame other people for not being able to pay their debt, and end up hurting all of us in the process. The problem for some is that they need to come up with a cash-in refinance to get their LTV ratio to 80%.
* Cheap money is getting cheaper. When I refinanced in the fall of 2014, the 10-year yield was at the same level as when I locked in my refinance on January 20, 2015, around 1.88%. What this means is that spreads have narrowed given my mortgage rate is now 2.625% vs. 3.125%. Banks are willing to lend more aggressively with a lower margin than last year. That is a good thing for the economy, provided that borrowers are credit-worthy.
* People who do not need to refinance get to refinance. This is the law of unintended consequences. Only if you have excellent credit (720 to 740+) and a LTV of 80% are you able to refinance. If you don’t have a job, are struggling to make your monthly payments, have an underwater home mortgage loan, and have poor credit, banks will not lend to you. If only you could get the same rate as new borrowers nowadays, you could much readily pay your monthly mortgage, you think to yourself. Since you can’t, you might as well default and tell the bank and the government, Up yours! Now the cycle begins.
* The rich will get richer. From individuals to private real estate funds, those with capital are buying properties in droves right now. They understand that a rental yield of 8% vs. a borrowing rate of 3% is a great return to earn while they wait for capital appreciation. The very same mega-landlords will write great propaganda why renting is better than buying to keep people out of the purchase market (less competition), and keep people happy to keep paying rent.
* Banks hate the government as much as people. Before you go blasting your mortgage officers for dragging their feet, know that they are waiting on the underwriter just as much as you are waiting on the mortgage officer to get back to you. It’s because of new government regulations that have made the underwriting process significantly more difficult to pass, that has created a 100% increase in the time it takes to refinance a mortgage loan.
It’s 2017 now and mortgage rates have started to tick back up after Trump’s victory. Thank goodness I refinanced for the final time another property in 2016 at a 2.375% rate for a 5/1 ARM.
Wealth Building Recommendations
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Updated for 2017 and beyond.