Archive for February 2011

PMI Agreement from Citi

February 28th, 2011 — 7:15pm

I received the PMI agreement from Citi.  The first thing I noticed is that my signature is nowhere to be seen, which I suspected.  In fact, I don’t think I’ve ever seen this.  The other thing I noticed is that the appraised value does not appear to be correct, although that’s not important.  So basically, the agreement doesn’t say much of anything.  It has the percentages and durations on there.  It says “Non-refundable premium if cancelled.”  I’m not sure that this applies to me in any way.  I didn’t cancel my insurance; I paid off my loan.  And besides that, Citi didn’t make the payment until two weeks after I paid the loan off, which means there would be nothing to refund since  no payment had been made until they decided to go back and charge me for an extra month.

Given the lack of any documentation specifying how the money is to be collected, I’m still fairly sure they charged me for an extra month.  I’m going to call the Office of the Comptroller of the Currency, and ask for their opinion before I pursue this any further.

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Banks Behaving Badly (continued)

February 23rd, 2011 — 9:21pm

See earlier post.  I finally told my loan agent I was going to visit his office to see if we could get some of these errors straightened out.  He didn’t seem to be too enthusiastic about about me dropping by for a visit.  In fact I couldn’t even get in the door.  The main entrance was locked.  I couldn’t get in until a lady at the front desk let me in, and then they gave me a badge.  Odd.  When I finally met my loan originator, he told me there was no need to for me to come by (we had been doing everything by email).  He seemed to be sweating and nervous.

My plan had worked, however.  In response to my visit, he fixed (probably the night before) the swapped mortgage amounts.  I don’t believe any of the other numbers had been changed.  But at least I felt good enough to hand over the appraisal checks.  A few weeks later, I received some more paper work with the loan amounts swapped again.  Oh well, I guess you can only ask for so much.

Then I waited.  And waited.  Nothing happened.  I called and emailed.  Nothing.  When I did manage to get a response, it was only that the paperwork had not yet gone to underwriting.  By this time I had received the appraisals.  A few more weeks passed and it became clear that I was not going to settlement by the lock date.  The rates had fallen slightly.  I was wondering if NASA FCU was intentionally delaying to try and get a better rate for themselves.  In any case I decided to try to negotiate a better rate.  When I first asked about re-locking at the current rate displayed on their website, my mortgage agent called me at the end of the day with a sort of counter offer.  He made me make  decision immediately, so of course I didn’t have any time to run the numbers.  I told him never mind.

A few weeks later, when my rate actually had expired, I demanded a better rate (actually just lower points).  To be continued.

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PMI Overpayment

February 21st, 2011 — 2:24pm

I made PMI payments as discussed in my last post for about two and a half years.  Even though interest rates were low at the time my loan was made, the higher percentage due to it being an investor property, combined with the PMI, made the effective rate over 7% (and climbing).  I was looking for ways to get out of what by today’s standards would be seen as a high interest rate and ultimately refinanced at almost the best time in the history of recorded mortgage rates.  My parents wisely told me to verify that the final escrow statements of the two mortgages were correct.  I contacted both banks and asked how my escrow and any overpayment would be refunded.  The accounting mostly appeared correct to me.

Wellsfargo sent me exactly the amount they said they would (the remainder of the escrow).  Citi did not.  I called to find out why some money had mysteriously come out of my escrow.  They said it was used to make two PMI payments and that the PMI was paid two months in arrears.  I went back and looked over the full history of payments.  Citi was paying my PMI to a company called Genworth.  The payments made to Genworth did not seem to coincide in any way with the payments I made to Citi.  They were on a completely different payment schedule.  This would have been fine, except that when I added up the number of payments I made to Citi, it came out to 31 months and a few days, but Citi made 32 payments to Genworth on my behalf.  It appeared as though they were charging me for December because the PMI payment was made around mid-month, even though I paid Citi off on the third.

Lets consider this for a moment.  PMI is insurance.  Insurance is usually prorated to the day.  It’s not like, for example, an agreement you might have with your tenants.  If the lease says the tenants are to move out by the 31st, and they leave on the 15th, you don’t refund them 15 days of rent.  You can’t just re-rent the house for those 15 days.  It costs you money.  Insurance has no costs.  More specifically, insuring something that has zero risk is free money.  Since my mortgage was paid off, there was no risk of default, and I was forced to pay insurance for something that could never happen.

I reviewed the Deed of Trust, which had a section on mortgage insurance.  It does not specifically mention how the insurance is to be paid, but it does have a sentence that says “Borrower is not a party to the Mortgage Insurance.”  I’m not exactly sure what the implications of this are, but I’ve taken it to mean that there is some agreement between my lender and the mortgage insurance company.  And whatever this agreement is, I am somehow bound by it.  If that’s even close to true, it makes me wonder if such an agreement would even be upheld by a court.  Since I have no say over whatever agreement they might have, they could theoretically put whatever they want in it, and I would be the one to suffer the consequences.  I was unable to find any other settlement documents that might have specified the exact terms of the PMI.  Of course, if you have ever been to settlement, you know that there’s enough documentation to make medium sized book.  It’s possible I simply overlooked something.

I contacted Citi by email half a dozen times.  I could not get them to answer my question about the (possible) overpayment.  They kept referring to the fact that the PMI was paid in arrears.  One time they told me the insurance company would send me a refund if applicable.  I contacted Genworth and they told me they didn’t owe me anything.  So I made various threats to Citi, such as reporting them to the regulatory agency and so on.  They responded by saying that they would conduct some kind of review.  A few days later they mailed me a statement saying that the PMI was paid in arrears and that no refund was owed.

Finally, I called them again.  I insisted the customer service representative and I go over the entire history of payments until we could come up with the discrepancy that was causing our disagreement.  After several minutes of going back and forth it was established, according to him, that because I made a payment on the first of December, Citi had to make a PMI payment to Genworth.  Never mind that all the interest for the month except for two or three days was refunded to my escrow.  If I had known this ahead of time, I would have turned off automatic payments, and apparently I would not have paid any PMI for the month of December.  (Of course, if NASA FCU had sent my loan to underwriting on time, I would have settled long before December anyway.)  I am doubtful of what he was telling me.  It doesn’t make any sense that I could have gotten out of that last PMI payment by simply delaying my monthly payment until the mortgage payoff was received.

I asked him if he could send me a copy of the agreement with these terms.  He said would put in a request to send me the agreement signed by me.  Whoa!?!?  I signed this?  Well, maybe I did.  I’ll find out in a few days.

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Private Mortgage Insurance

February 20th, 2011 — 4:30pm

I only put down 10% on my investment property.  Generally, when you put down less than 20% on a property (LTV of 80%), you either need to purchase Private Mortgage Insurance (PMI) or you need to take out a second loan.  For investment properties, you might need an LTV of 75% or less.  I don’t know the exact rules, and they have probably changed or will change due to the financial crisis.  Also PMI does not cover your payments if you can no longer afford them.  It insures the bank against your failure to pay, so you will probably never deal with your PMI company.

My loan originator mentioned that it would be better if put down at least 20%, but based on the numbers (and my lack of money really), I decided I would be better off paying a little extra for PMI.  I could have gotten a second mortgage, but I didn’t want to have to deal with a second lender and all the associated paperwork.  However, my loan originator failed to mention two important things.  The first was that the percentage paid for the PMI is not locked like your rate is locked.  I, naturally, assumed both numbers would not change, but I found out the hard way, at settlement, that the PMI had increased by at least .2%.  Of course it went up; would you expect it to go any other way?  The other thing I was not told was that you can’t get rid of PMI.  You have to pay it until the loan is paid off.  I believe my loan originator was probably unaware of this.  My settlement attorney said something about it.  He too, apparently, did not know the law in this particular case.

The Homeowner’s Protection Act lets you cancel PMI once your LTV drops below a certain level.  I’ll let you read it yourself; I’m not very familiar with it since it has never applied to me.  As I later learned, it only applies when the house is your primary residence.  If you’re an investor, you pretty much get thrown to the wolves.

My specific plan, which I learned about at settlement, required me to pay .9%  a year on the original value of the loan for the first 10 years.  It then dropped to .2% for the last 20 years.  Let’s think for a moment about just how bad a deal this is.  In a healthy real estate market, you might expect the equity in your house to increase to more than 20% of its value within less than 5 years (assuming an initial LTV of 90%).  With PMI, you would be stuck paying thousands in insurance to protect against a default that has no more chance of occurring than someone who initially made a 20% down payment.  In fact, even as the risk of default drops to zero, you will still be paying insurance.  There’s a simple phrase for that: free money (for them, not you).  Even if you did default, the bank would more than recoup any losses.  Additionally, since the interest rate pertains to the original value of the loan, if the loan is held for the full 30 years, there will likely come a point in time at which the monthly PMI payments are greater than the interest on the loan itself.

The bottom line is this: Don’t get PMI. Had I paid PMI for the full term of my loan, I would have paid more in PMI than the additional 10% down needed to get rid of it.  Take out a second loan instead; you can always pay it off later.  If you absolutely have to get PMI, make sure you find out all the details up front and that your rate can’t change at settlement.

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Banks Behaving Badly

February 19th, 2011 — 8:17am

OK, so it’s really a credit union.  Back in August of 2010, when mortgage rates were at all time lows, I decided to refinance both an investment property and what used to be my primary residence before I lost my job.  NASA Federal Credit Union was ranked A+ by the BBB.  My brother had used them, and even though they gave him grief over some nonsense and, I believe, delayed his loan, for the most part, things didn’t go too poorly.  Also, they had really good rates.  I had also looked at some online lenders with excellent rates, such as Amerisave and Aimloan, but I was convinced to stick with a local lender that was probably more reputable.

Right from the very start, I could not get any meaningful answers to my questions.  I (or my parents) had asked about the down payment requirement and the interest rate for an investment property.  I was told that there was no difference in interest rates between an investment property and a primary residence.  I don’t remember what they said about the down payment, but I believe over the course of a few months the number altered between 20% and 25%, depending on  when and who you asked.  Upon pressing them for more details later, it was revealed that investor loans really were the same interest rate, but you had to pay an extra 3 points.  In addition, they charged another .5 (I think)  points for loans less than $90,000.  The 3 points later turned out to be 1.75 points, and the .5 points mysteriously vanished altogether.  Hey, I’m not complaining about that.

Oddly they didn’t seem too interested in my business, despite the fact that I was one of those rare people out there with a job, money, a high credit score, and properties waiting to be refinanced.  I suspect now the reason is because they were already overburdened with so many larger loans.  When your margin is small, you need more volume.  And because they had low rates, it gave them a lead over the competition.  So it took some time to get any acknowledgment of my application.

When I finally did get a response, it was a complaint that they could not read my handwriting.  OK, fair enough.  I would have done it online, but they gave me PDF files.  The first piece of documentation I was sent was a loan summary for one of the properties, but most of the numbers didn’t make any sense.  It took a few days for me to receive enough documentation  to figure out what was going on.  My loan originator had swapped the amount of the loans on the two houses.  I eventually figured that out from looking at the current loan balance.  Part of the reason it was difficult to identify the problem was because the value of the property was apparently made up, or perhaps it was an estimate I supplied; it’s no longer clear.  That was at least somewhat understandable since there was no appraisal yet.

The summary also showed the origination percentage and the discount points.  The origination percentage was not at all clear.  I would later learn that they lumped a fixed fee in with origination fee, but it was not documented at that time, nor was it ever documented.    This poor habit of neither disclosing, nor documenting, as well as lumping together the various fees would later become a problem.  But at the time I had not figured out what was going on yet.  Many of the rest of the loan summary numbers were apparently made up: recordation fees, attorney’s fees, title insurance, transfer tax, etc.  I don’t have a problem with making some estimates, but if most of the numbers on a loan summary are meaningless, then why even bother providing a loan summary at all?  This would become another theme throughout the refinancing process.  The paperwork is treated as some law or regulation that stands in the way of business. They gave me the paperwork, and even though every single documented number might as well have been wrong, they seemed to be satisfied that their obligations to me were met.  The paperwork isn’t there just to make some regulator happy.  Some of us actually read this stuff.  It needs to be correct.

Next I received the rate lock and loan points agreements (one of them came with the other loan summary).  The mortgages were still swapped at this point.  Also, curiously, the dates did not add up.  The commitment period began 8/31/2010 and ended 10/15/2010, but it also said I had 60 days.  At the time I didn’t care very much about the obvious conflict, but it would later become extremely stressful not knowing when the lock expired because they were unable to process my loan in any reasonable amount of time.

At this point I started requesting that at least some of the documentation be fixed.  I wasn’t about to send two $500 checks for appraisals with the mortgage amounts still swapped.  I wasn’t angry yet; everyone makes mistakes.  But they ignored my requests to fix the problems, and so I asked again.  And again.  To be continued…

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