Sneaky Mortgage Add-Ons. I'm Pretty Much Disgusted!

[cheburashka]

OK, this one's a long rant. Yesterday, we get a call from our mortgage company offering us a re-fi which will lower our interest rate by .5%. This is one of the biggest companies in the country--you might say they're country-wide--and we're good customers. Well, actually too good, meaning we kick in an extra couple of hundred every payment toward principle. Anyhow, we thought we were being rewarded. Turns out they had tacked on $10,000 in closing costs (on a $175,000 loan) and the re-fi would have lowered our payments by $40 a month while increasing the term of our loan by two years. It doesn't take a rocket scientist to figure out that this isn't a good deal. $14000 in lower payments over the next 28 years, balanced by $33000 for the two years that the loan was extended for doesn't make any sense at all. But that's not what the rant was about.

We got to checking our payment stubs and noticed that they hadn't changed our escrow amounts when the property assessment went up six months ago, so we were in arrears on that account. My wife called up and pitched a fit, and eventually we got an offer--they could either stretch out the amount in arrears, or they could DROP THE MORTGAGE INSURANCE RESERVE.

I had never heard of a mortgage insurance reserve. It turns out that they've been taking $80 every month, just in case we default, and putting it in a reserve account. Does that reserve account help pay off our mortgage? Nope. Then where does it go? Straight into the pocket of the mortgage company.

I'm disgusted. All of our paperwork has said we were paying 6% interest, but it turns out we're paying closer to 7% with this amount tacked on. It's supposed to be there to cover possible losses due to foreclosure, but we've never missed a payment and our equity in the house exceeds the amount we owe. In short, we were assessed a penalty based on risk when no risk exists.

I have to wonder, with these mortgage companies allowed to do things like this, how they got themselves into so much financial trouble in the first place.

 

[bjcsc]

Re: Sneaky Mortgage Add-Ons. I'm Pretty Much Disgusted!

Refinancing is never worth it for less than a whole point for pretty much the reasons you stated.

A mortgage's interest rate and its APR are never the same on a loan. The difference depends on points and how you structured it.

Mortgage insurance is required anytime your value to equity ratio is higher than 80:20. If you want to drop the mortgage insurance (PMI) you have to either make a larger down payment from the get go (20%), wait for the equity to build beyond the 20% mark, or the most popular, renovate, reappraise, and refinance (when the rates make it smart to do so).

I don't think they're doing anything unusual - it all sounds pretty standard to me...

 

[cheburashka]

Re: Sneaky Mortgage Add-Ons. I'm Pretty Much Disgusted!

Mortgage insurance is required anytime your value to equity ratio is higher than 80:20. If you want to drop the mortgage insurance (PMI) you have to either make a larger down payment from the get go (20%),

That's just it though. We put down a huge down payment and have never below 60:40.

I agree with you that this is pretty standard. That still doesn't make it right.

 

[bhammer]

Re: Sneaky Mortgage Add-Ons. I'm Pretty Much Disgusted!

The mortgage companies shave been charging "insurance" for years, called MIP Mortgage Insurance Premium. Yes, it is a legal way to steal your money. I am not sure if it is the same state to state, but here in TX, you don't have to have it on a mortgage of less than 80% loan value. When you initially closed on your loans, it should have been disclosed on a loan facts sheet.

 

[mscher]

Re: Sneaky Mortgage Add-Ons. I'm Pretty Much Disgusted!

I have to wonder, with these mortgage companies allowed to do things like this, how they got themselves into so much financial trouble in the first place.

It was all quite simple and part of the grand plan, for mortgage companies.

Charge huge fees and interest rates, writing loans, for overpriced homes, to many folks, some they they were pretty sure could not pay the loan back.

Sell this "good" loan to a larger mortgage pot, like Freddy Mac, backed by Uncle Sam.

Keep doing the same thing, so until the real estate bubble bursts.

Write all the mortgage company executives, huge severance checks, say "oh well" and head for the door.

Worked exactly as planned ;(

 

[roscoe]

Re: Sneaky Mortgage Add-Ons. I'm Pretty Much Disgusted!

Nothing out of the ordinary here.

"In short, we were assessed a penalty based on risk when no risk exists."


There is always risk.

You could go bankrupt at any time, for a number of reasons.

Cover all your bases. CYA, The mort co is sure going to.

If you are really upset with them, WALK you but over to another mort co and let your $ do the talking.

Find a decent broker or local bank and get the terms you want.
The escrow arrears will be spread out, and the pmi will be gone.

By the way, it is your responsibility to make sure the re-assessment / valuation / tax increase / insurance premium increases, escrow deductions are made.

 

[cheburashka]

Re: Sneaky Mortgage Add-Ons. I'm Pretty Much Disgusted!

Nothing out of the ordinary here.

"In short, we were assessed a penalty based on risk when no risk exists."


There is always risk.

You could go bankrupt at any time, for a number of reasons.

Cover all your bases. CYA, The mort co is sure going to.

If you are really upset with them, WALK you but over to another mort co and let your $ do the talking.

Find a decent broker or local bank and get the terms you want.
The escrow arrears will be spread out, and the pmi will be gone.

By the way, it is your responsibility to make sure the re-assessment / valuation / tax increase / insurance premium increases, escrow deductions are made.

On the subject of the escrow deductions, I don't know what I can do beyond what I did, which was calling the company, telling them about the increase in property taxes, and asking them to adjust accordingly. I told them what to do. They simply didn't do it.

As to why I'm dealing with this company, I didn't choose to deal with them. I took out a loan with a local bank. Then they sold it off to CW within a month of closing. If I walked and got a new loan, the same thing would happen again.

As to risk, I see no risk. At this point I've paid off around 40% of my original loan, and my house value has increased by 50% or more since it was originally assessed. If I went bankrupt and they foreclosed, they'd make out like a. . .like a mortgage company.

 

[roscoe]

Re: Sneaky Mortgage Add-Ons. I'm Pretty Much Disgusted!

"On the subject of the escrow deductions, I don't know what I can do beyond what I did, which was calling the company, telling them about the increase in property taxes, and asking them to adjust accordingly. I told them what to do. They simply didn't do it.

As to why I'm dealing with this company, I didn't choose to deal with them. I took out a loan with a local bank. Then they sold it off to CW within a month of closing. If I walked and got a new loan, the same thing would happen again.

As to risk, I see no risk. At this point I've paid off around 40% of my original loan, and my house value has increased by 50% or more since it was originally assessed. If I went bankrupt and they foreclosed, they'd make out like a. . .like a mortgage company."

________________________________________________________________

If you knew the tax bill was increased, you should have set the money aside. Or, you could have sent the money with your payment, and had it added to the escrow account.

The contract you signed with the local bank is the contract you have, CW didn't change anything. The contract you signed gave the bank your permission to sell the paper to CW. Next time choose your lender more carefully, read and fully understand the contract, choose a lender that holds and services the mortgage (there are still a few out there).

All you have to do is be informed. The truth in lending disclosure laws are all pretty clear, and are presented before all closings. The PMI can be removed from the mortgage, all you have to do is have less than 80% mort to value - and ask to have it removed. True, it never needed to be there in the first place, but you signed the contract.

There are always risks, and the costs associated with them.. You may not see them, but they are there.

 

[rolmops]

Re: Sneaky Mortgage Add-Ons. I'm Pretty Much Disgusted!

All I can say is that I am very glad to live in NY state,at least for this mortgage deal.
Our local bank closed on our mortgage and 10 years later still holds on to it.The good part is that everything you just described is highly regulated in NYS and some of the things you just described would have landed the banker in jail.A side effect of this is that the housing market in NY is still very stable and prices have not tanked.
Sometimes regulation and government control is a good thing.

 

[cheburashka]

Re: Sneaky Mortgage Add-Ons. I'm Pretty Much Disgusted!

If you knew the tax bill was increased, you should have set the money aside. Or, you could have sent the money with your payment, and had it added to the escrow account.

You're picking up on a very small part of what I'm talking about. Obviously I had the money to replenish the escrow account, since I had been paying a couple of hundred extra each payment to principle. I can also take the pickles off of my Whopper when the guy who makes it forgets that I asked him to do so, but I have a right to be upset about it. Regardless, my complaint is that I was being charged "insurance" to cover the possibility that the bank would lose money in a default situation, but the bank was in no financial danger if I were to default.

The fact that they so readily took the $80 a month off of our payment pretty well demonstrates that they didn't feel they needed it, don't you think?