Q: I currently already have a mortgage with one of the big banks, the ones you call “big box lenders.” I consider myself an average working American struggling to keep her head above water in this economy.
I have owned my home since 1997 and with the recent low refinance rates decided to try to lower my current 6.75 percent interest rate.
I started this process in September, and now almost 5 months later am no closer to a closing date. My loan officer kept telling me throughout this process that there was nothing to worry about and there were no problems with my application although the original agreement in writing has long expired.
After all the additional paper work and mental exhaustion through the process, my loan officer has come back and advised me that my application is considered incomplete and the lender needs more information.
And now they want me to close two of my major credit card accounts. I can’t just pay off the balances. I have to close out the accounts and I have to do it immediately.
Can you believe this? I am entirely uncomfortable with this requirement because with the economy the way it is, it would be difficult to get new credit card accounts, and I have had these open for several years.
Why are they giving me this ultimatum after 5 months when again there weren’t any problems advised prior to this? They won’t guarantee my original interest rate of 4.375 percent, and won’t tell me what interest rate I would qualify for even if they do approve the refinance.
I feel like I have been swindled. Is this usual mortgage practice? And if so, there should be a law against it.
A: It may be hard to hear this after all you’ve been through, but the truth is these folks just don’t want your business.
They aren’t trying to keep you as a customer.. They’ve strung you along and now want you to give up your credit accounts. It doesn’t sound right to me.
You should abandon this lender and talk (but don’t apply) with at least one other mortgage lender, mortgage broker and a credit union, if you are a member of one. If you talk to some of these lenders, you might get a better understanding as to whether the issues you faced with your current lender are real or they just don’t want your business.
I’m assuming that nothing in your life has really changed during the last five months and your current lender could have told you of issues you might face in your loan application. There are times that certain issues arise that can cause problems, but you should be made aware of these issues within a couple of weeks of applying, perhaps two months. But it should never take a lender five months to get back to you and tell you there is a major issue with your application.
Certainly if you had failed to cooperate with the lender and get them the information they need, you are to blame. But if you have given them all the information promptly, the lender is to blame for the wacky turn of events with your application. The process seems to have been mismanaged.
Having said that, if there are major issues that affect your loan application, you should determine what those issues are. If the issue is something that only this lender would care about, you should have better luck with another lender. But if your issue has to do with your credit history, credit problems, too much debt or other credit, income or debt issues that could derail your application with any lender, you’ll have a real problem refinancing your loan.
In some cases when property values have declined, people with good credit have trouble refinancing. Lenders want to see borrowers have a certain amount of equity in a home, a limited amount of debt and a certain level of income. If the amount of equity in a home is low, they will want to see a greater amount of income or a lower amount of debt. You may have fallen into this trap. However, if this is the case, they should have told you of that issue months ago.
The only wrinkle here is if you simply don’t have any equity in your property. But if you bought in 1997, you should have paid down quite a lot of your loan. I’m hoping you have enough equity to qualify for a standard 80 percent mortgage.
This is why it would be wise for you to talk to some other lenders. Get a copy of your credit report and a copy of the appraisal of your home from your current lender and take that document along with all of your other documents to a different lender. Have them go over the information to get a feel as to whether you are a good candidate for a refinancing.
Don’t apply with these other lenders. As you previously applied with a lender, they pulled a copy of your credit report. If you now pull another copy, your credit score will take a small hit. And you don’t need that hit unless you know that you plan to apply with another lender for a loan.