Mortgage Refinance Guide

You’ve probably been hearing about the credit crisis in the mortgage industry recently and a number of people have been asking me what’s really happening. While it’s true the meltdown of the sub-prime or bad credit mortgage industry is affecting conventional mortgage lenders, the impact is not as bad as the gloom and doom you’re hearing in the news.

Who is the credit crisis affecting?

Homeowners that purchased their homes with loans not appropriate for their needs or financial situation and those with bad credit are feeling pinched by the crisis. This includes homeowners that purchased their homes with risky interest-only and option Adjustable Rate Mortgages (ARM) that are scheduled soon to reset. Many of these homeowners used these risky loans because they have low credit scores or are unable to sufficiently document their income and assets for a conventional mortgage loan. Homeowners with credit scores that are lower than 620 in need of jumbo or stated income loans will find getting approved very difficult if not impossible in the current climate.

Who is the crisis not affecting?

Homeowners with good credit in need of conforming mortgage loans (loans less than the $417,000 limit set by Fannie Mae) are not going to have any trouble refinancing their mortgage loans. The Federal Reserve recently lowered short term interest rates because of the crisis and mortgage rates are still very low. If you are in need of a stated income mortgage loans these loans are gradually becoming available; however, you will need to meet the credit/asset guidelines in order to qualify.

Mortgage brokers and lenders are feeling the pinch and should be eager to make deals; you will need to be careful to avoid junk fees and the unnecessary markup of your mortgage interest rate known as Yield Spread Premium.

Beware Junk Fees and Retail Markup

There are a number of junk fees listed on your Good Faith Estimate and HUD-1 statement you need to avoid when refinancing. Anything you find on these documents that resembles an application fee, lock fee, processing fee, or a courier fee is a garbage fee you should simply refuse to pay. The interest rate you are quoted when applying for a mortgage is typically a retail mortgage rate that includes your mortgage broker’s markup. This markup of your mortgage interest rate serves no purpose other than to give your mortgage broker a commission. Because you’re already paying an origination fee for your mortgage broker’s services this markup often doubles or triples your broker’s commission.

When questioning mortgage brokers about this markup known as Yield Spread Premium many brokers become defensive even angry. Your mortgage broker might tell you not to worry about this fee because it’s coming from the lender’s pocket; however, the reason the lender pays this fee is because you’re agreeing to pay a higher mortgage rate than you need to. You can learn more about avoiding Yield Spread Premium and other junk fees when refinancing your mortgage by registering for this free mortgage toolkit.