Refinancing: when to cut your losses and switch banks?

artemis78March 20, 2009

I'm curious to know if anyone has any thoughts on we're currently in the process of refinancing our home, which is just squeaking by at 80% LTV with the most recent appraisal. We made the decision to go with our local bank to bring the loan back to our community. Unfortunately, this has turned into a nightmare as they received ten times the number of applications they typically receive and the local loan officer is in way over his head.

So now we have the following dilemma: we started this process in January and locked at a good rate. The appraisal was within days, the title search was done, and everything was back at the bank well within our 30-day lock period. Then it sat. And sat. And sat. Then they lost some of it. Then it sat some more. They kept assuring us things were moving forward and promising to return calls, but rarely did.

Now it's March, and our lock period has long since expired. The bank has raised its rates significantly and is now a sold half percentage point above the going rate with our current lender and the other credit union that we bank with. The fine print says that once the lock expires, we revert to the higher of the lock and market rates (lousy policy to begin with, but there ya go). The bank has also stopped offering everything but 90-day locks and has a big warning that they're weeks behind on apps on their website, but of course none of that was the case back in January.

So...we're wondering whether/how long to stick this out. If we cut our losses and move our refinancing request to another bank that can offer us a comparable or lower rate and (hopefully!) a more competent/timely closing, what sunk closing costs should we reasonably expect to pay at the first bank? The appraisal and title search were third-party efforts, for instance, so it seems reasonable to pay those if we back out---we don't want independent parties who did their jobs to suffer as a result. But what else can the bank require us (or should we offer) to pay if we back out at this point? Is this likely to be good or bad strategy in the long run, assuming hypothetically that we lock at an identical rate elsewhere?

This is all a little nuts for us since when we first bought our home we had a fourteen-day close that was smooth sailing all the way (although, granted, it was in the midst of the mortgage collapse so they weren't exactly closing a lot of loans then....but still never expected months of this!)

Any advice would be welcome---thanks!

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Hi Artemis,
Is the loan officer themself competent, in your opinion? (You may or may not have realized how important the quality of the specific individual is, versus their employer.)

If so, I'd suggest getting a full-detail situational report on where your file is, exactly in the pipeline process. I would exepct you are already deep along the way to final approval... and in almost no case could you actually re-start someplace else & get to the finish line faster (exemption for actual incompetence of the professional you'd chosen.)

There is no greener grass (commodity-wise or speed-wise) anywhere right now...

Dave Donhoff
Leverage Planner

    Bookmark   March 20, 2009 at 6:35PM
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Thanks, Dave. Re: competency, it's hard to say---he's not very responsive and at one point DH had to go find him in person to get an update, but when we pushed him on "what on earth is taking so long" he shared the info on the huge uptick in apps (not surprising, as I know that was a national trend) which explains a lot. I expect he is a competent (though probably not amazing) loan officer under normal circumstances, and is just entirely overwhelmed.

Our bigger concern isn't so much getting to the finish line faster, but getting to the finish line at a rate at which it makes sense to refinance. The bank's current rate is only .75% below our rate now, whereas the rate we locked at (and the rate that our lender and credit union are offering right now) is 1.25% below, which works out to a big chunk of change since we're in a high-cost area--especially as we said long ago that we would only refinance if rates fell at least a full percentage point! (Importantly, though, we don't know for sure whether the bank is going to honor the original rate or not in light of the circumstances and the fact that they had everything from us many moons ago; DH has spent today trying to get an answer on that.)

    Bookmark   March 20, 2009 at 6:46PM
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Personally, I would push for the original locked in rate, due to the fact the banking officer seemed to have screwed up. Is this a single bank or branch?? If branch you might go to the CEO or main President and present your fact and insist they honor their original agreement. Or you could be changing banks and pulling all your money out.

    Bookmark   March 20, 2009 at 8:39PM
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We're seriously thinking about pulling our accounts regardless....the lack of communication has been extremely frustrating! (This is actually a credit union with branches across the state, and has been DH's bank since he was a child---30+ years!---so it's been very disappointing to say the least.) We definitely plan to push for the original rate given that they clearly recognize that they're having issues, and haven't been upfront with that--we might have made different decisions (re: lock length or going forward at all) had they said "wow, we had 1,000 applications this week; could be a while!" Just trying to get our ducks in a row so that I know whether it's really feasible to say we'll walk---we've already talked with our current lender to find out what's transferable if we just refi with them, but wanted to make sure I had a good understanding of what we're obligated to pay of the costs if we do pull the application, since it changes the break-even point somewhat if it's $1K in sunk costs versus $4K, etc.

Really, *really* hoping we get a call from the loan officer agreeing to honor the original rate on Monday morning, though!

    Bookmark   March 20, 2009 at 8:57PM
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I'm wondering, is this really about workload or is it about added scrutiny or is it about lack of investors?!

    Bookmark   March 21, 2009 at 2:26AM
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You could have paid for a lock extension... the LO should have called you a few days before and explained this.
I would do exactly what you are doing... try to get the original bank to honor the locked rate, and if not transfer as much of the work over to someone else. The original bank HAS to supply the appraisal to you, as long as you agree to pay for it. Getting the other bank to accept it may be a challenge. If the original bank just gives you a hard time, tell them that you are backing out, not paying any fees, and moving your 30 year commitment to their competitors!
You are the customer here, and they should want your business.

    Bookmark   March 21, 2009 at 8:25AM
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I'd insist on the original rate as well. Especially considering the following news.

A link that might be useful:

Mortgage Rates May Fall to WWII Low on Fed Purchases

    Bookmark   March 21, 2009 at 7:10PM
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Thanks. Yes, the lock extension fell out of the picture largely because DH had done the paperwork and I thought he'd gone with the 45-day lock. As day 45 approached, I pointed out that we needed to push the LO to close or at least update us, and DH *then* mentions that actually it had been a 30-day lock! Ah well. In the end, I'm glad we didn't pay for the extension, though, as we're now about to be beyond 90 days, which is the longest the bank extends. (Interestingly, for new loans they also only offer 60- and 90-day locks now---when we applied the options were 30 and 45. Hmmm...) DH was in regular contact with the LO during that stretch, though, and was constantly assured that "everything is moving along fine; don't worry!"

We can't transfer the appraisal, but it's helpful anyway since property taxes in our area are based on value at Jan. 1 if it's fallen over the previous year, and this was done a few days later, so it's probably worthwhile to have anyway as documentation for next year's assessment. We're also happy to pay the title company since they did a good job of turning things around immediately and they shouldn't take a hit for a situation outside their control; it's the bank's in-house costs I don't feel that we should pay if we don't close with them, since the delay is of their doing. Just not sure if legally we must pay them anyway.

At this point I'm half tempted to just delay the closing till they finally drop their rates again (which I imagine will happen eventually as they seem to be the last man standing at 5.5%, though who knows) and it becomes a moot point....oy!

    Bookmark   March 21, 2009 at 7:49PM
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Sorry to hear it's taken this long .. I will warn you that every mortgage lender/bank/broker, etc. is currently buried with refinance business .. and those lenders that will be rolling out the new refinance plans based on Obama's Stimulus package, will only get more buried. Not because of anything more .. like was mentioned above.

The sheer voume of loan applications is overwhelming, and many lenders raised their rates to slow down the volume. We can't go out and hire temps. to do the work, and can't go and staff up when this volume could go away at any moment. We have processing/underwriting staff that have been working 6 to 7 days a week for 2 months now.

You might be right and just sit it out where you are ... their 5.5% rate IS high to other rates today.

    Bookmark   March 23, 2009 at 1:09PM
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Just a postscript to this....we did finally (!!!) hear back from the bank today. They have agreed to honor the original interest rate, though we're still a bit frustrated as they don't expect the loan to close for another month....DH wants to see if they'll refund some of the closing costs given the months it took while we paid at our old rate, but at this point I'll just be happy if we close at our locked rate sometime this decade. :) But, generally, a happy ending, so I thought I'd share it!

    Bookmark   April 1, 2009 at 12:18AM
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