Fico over 800 & over 50% equity & can't refi

[paulh]

I currently have a 5 yr arm which reset last fall raising my interest rate
from 5.5 to 7.75 based on LIBOR + margin of 2.25. When I took it out I intended refinancing if I had not moved. I had refinanced before that without a problem. Six months ago I applied for a refi with a broker advertising "no cost refi's". Obviously I was a little wary but was assured that it truly was no cost and that they were working on high volume with a lower profit per deal.

About three months following my initial app, I had a call from an appraiser, who then came along and did a appraisal on my house. Before he left he asked for the appraisal fee. I showed him the brokers ad etc and refused to pay him, telling him I would be in touch with the broker. On contacting the broker he again confirmed that it was "no cost" but that they now needed the applicant to pay the appraiser directly due to some change in government regs, but that they would reimburse the applicant at closing. They should have told me this before sending an appraiser over. However, as they told me everything else was o.k. subject to the value it was a go and agreed if I sent them a check they would not deposit it until everything was formally approved.

I sent them a check and all I have had since is more delays followed by a formal "denial of credit" letter from their mortgage co. The reason stated was "application withdrawn". I then contacted the president of the brokerage and told him that unless he could give me a good explanation I would be opeing a complaint with the bbb. He told me that he would investigate and that there should not be a problem. Since then I have just had more delays. My credit score is over 800 and the appraisal came in at $575 which I thought high, as in my opinion in today's tougher market it should be around $525 based on recent comps. My present mortgage is $200 so I have plenty of equity even at fire sale appraisal values. For the last 9 months I have been paying the higher rate on time, as always. I am self employed, and told them that upfront. I have had my present firm for 30 years which has been at the same location for 15 of them. The premises are rented, but again I have an excellent record of on time rent payments. I have postponed applying with another broker as I have heard that a new application will lower my credit score, but this lot is going nowhere. Am I being unrealistic in expecting a refi with no cash out, when I hear of people with lower credit scores and 20% or less down who are able to get approved at a reasonable interest rate?

Hi Paul, Welcome to LoanSafe

You are in for a pleasant surprise this fall. Your rate is very likely to go down! Your margin of 2.25% and the 1 year adjustment periods are indicative that you did not have a sub-prime loan. Your loan is very likely tied to the 1 year LIBOR, as published in the WSJ. You may or may not have a floor rate of 5.5% or the margin which is 2.25% These were the typical formulas for A and ALT-A loans. Check your ARM rider or Note.

Today, the 1 year WSJ LIBOR is 2.92%. If you were to adjust next month, your rate for the next 12 months would be EITHER 5.25% (rounded to .125%) OR back down to 5.5% if your Note specifies that the start rate of 5.5% is also the floor rate.

My numbers may not be exact, but the method is correct. Check out your loan docs where it specifies the way your loan adjusts and calculated.

Your ARM loan may be one of the "good" ones in a market in which interest rates are declining.

Regarding your refi questions, I have a couple of comments and suggestions. I have years of experience in the mtg. biz so these questions are relevant.

First, you are correct that your FICO, a "no cash out" loan type, and the lower than average loan to value ratio are huge plusses for you. The fact that you are self employed should not be any big deal either.

Qualifying for a $200,000 conforming loan does not take a lot of income. Fannie will let the debt ratio go way up if there are other compensating factors. I think there is something missing from this transaction.

Did the broker ask you to supply last 2 years of Federal Tax Returns with K-1s? or did he attempt to write a stated income loan?

Is your company a corporation? Do you pay yourself and others a W-2 type of wage?

Something is missing here. This ioan is not that difficult.

Let us know what you find out.

[paulh]

Thank you for your input. My adjustable rate resets in Sept and is based on the LIBOR rate for the previous month. While I hope it holds close to where it is now, in this economy nothing would surprise me. Also there are the subsequent years to consider. That was why I would feel safer with a fixed at a reasonable rate.

I am a "sole proprietor", and the loan applied for was of the low doc variety, i.e no tax returns (as indeed was the present one, and the one before that). When I applied the real rate was about 5.5 when I was quoted a "no cost" 6% rate. I think what happened was that rates went up and the broker just kept stalling hoping they would come back down. Just my theory.

At least my concerns led me to this forum, which is a mine of information for someone like me who is not particularly mortgage savvy. I am sure that the knowledge gained now and down the road will help me make better decisions.

Thanks Paul,

The reason I asked about the doc type, is that most, if not all of the no doc, low doc, stated, etc. type of loans are history at reasonable rates.

The tax return question is because a $200,000 loan doesn't take that much income for qualification, especially if you have some cash reserves, 401K, IRA, etc. Low LTV is also a big factor.

I think you might want to try this again with a broker or lender who will take the time to look at your returns, add back in the credits, and work up your file as a "full doc" loan. If I were still a loan broker, that is exactly how I would approach it.

[paulh]

Before I responded to your earlier response I had contacted a broker who I had used previously. He still had all my data on file. He told me that I should have
no trouble qualifying on a low doc loan, but that the interest rate had just risen to about 6.25%, and that he would call me back with closing cost numbers. He did but the closing costs would be close to $5500, so I told him I would let him know if I wanted to proceed. My libor rate will be known in mid Sept so I think I'll wait and see if it stays around 3. If it's back up to the 5.2 then I'll refi, or try to! If this broker quoted me $5500 vs $0 compared to the broker who kept stalling, I am pretty sure that they did not even submit my app to a lender.

I have looked up the history of Libor rates over the last 15 years and conclude
that predicting a rate 6 months down the line is a crapshoot, but dropping another $5500 right now does not make sense.

Frustrated but not nearly as confused.