Hunting The Muse

House Final

Well, I own the house. Phew! All over! And I finished moving all my possessions to the house tonight, too. I didn't have time to clean it properly before I moved in so that will be a bit complicated to manage, but overall I'm quite happy.

The rest of this entry will be an in-detail description of exactly what I went through with the mortgage process. It'll be boring, but for people who don't know what to expect with mortgages, maybe it'll give some idea of what sort of things can happen. I know I would have liked to have read an in-detail description of a mortgage process before I started.

I looked for a house for a long time. I used a buyer's agent so I could get into houses with lockboxes. All the buyer's agents around here ask you first if you've been preapproved. It's a seller's market right now so you pretty much have to be preapproved to have a chance of landing your house.

I got preapproved through a mortgage broker that a friend recommended. After several offers that were rejected, I made an offer on this house that was accepted. The offer added 2k onto the asking price, and asked the seller to pay up to 6k of closing costs. Normally, the buyer pays closing costs. In this market, closing costs for this price range is 6k-7k. So this meant that while I would normally have to come up with 6k when it was time to sign for the house, here I'd only have to come up with money if the closing costs were greater than 6k. If the closing costs were less, it would benefit the seller. For example, if closing costs were only 5k, the seller would pay 5k and that would be it - they wouldn't cut me a check for the extra grand.

I put $2500 down for "earnest money". This is to show that you are serious. And if the buyer welches on the deal for a stupid reason, the buyer can lose that money. If the deal goes through, the earnest money is contributed towards closing. In my case, since seller paid closing, I'd actually get most or all of the $2500 back.

I decided to try and fully finance the loan for more cash flow flexibility. After briefly considering a 30-year fixed loan (which is generally advisable since rates are so low), I realized there was next to no chance I would be in this house for an extremely long time, so we went for lower interest rates and a 5/1 ARM. This means that the interest rate is fixed for five years, and adjusts after that. We did that for 80% of my loan. The other 20% was to be a HELOC. It basically acts like a credit card that starts out maxed out - you pay it off, and then when you want, you can get money from it again (up to maxing it out).

Originally, both loans were described to me as having interest only options. Meaning, for added flexibility, you can pay just the interest payments without the principal. The 80% loan (the "first") was quoted at 4.875%, and the 20% loan (the "second") was quoted at 6%. Over the phone, they gave me an indication of what my monthly payments would be at that rate. I specifically asked for PITI numbers, both loans added together. This means that I was asking for the monthly payment with principal, interest, taxes, and insurance all added together. I wanted this so I could compare the numbers to other brokers I was considering. My original broker had switched careers and was unavailable at the last minute (after the offer had been accepted), so I was in a bit of a mess trying to get another preapproval together and finding a new lender.

That afternoon, I was told by two separate brokers, the rates went up. I tried calling my favorite broker right back to tell them that I wanted to "lock" the rates, which is good for thirty days. The next morning, before they got my message, I was told by the broker I was going with that the rates went up again. Huh.

That was okay, they said, they could get me into this other program. (I would find out much later that the program that was first quoted to me was from FNBA - First National Bank of Arizona - but I haven't checked up on that.) We locked in the other loan at 5.125 for the first and 6.3 for the second. The broker promised to set a "rate watch" for the other program, and if the rate came down again, we could slide right into it. The reason given was that the other program didn't move with interest rate like standard loan programs did; didn't mirror the daily bank rate movements. Instead, it was set every few days at the discretion of the people behind that program, by watching trends and making judgments. I would check with my brokers every few days, but this other program never came back into the picture.

The FNBA loan wouldn't have needed any tax or bank account documentation, because it was a very credit-driven program, and when they ran my credit they saw I had excellent scores. Upon locking the new numbers, though, my loan officers asked for my financial docs - they said they could get those rates without the docs, but this was in hopes of knocking down the rate another eighth.

During this time the home inspection happened - we found a problem and negotiated it to be fixed. Sellers asked for closing to be moved up to the 17th, and we agreed, conditional on the mortgage brokers being able to bring it home that fast. The brokers said it would be possible, but tight.

During this time, I received my Good Faith Estimate from my brokers in the mail. The numbers were significantly higher. This was the first big disagreement. Despite me asking them specifically for PITI numbers over the phone, they had given me interest only numbers, while telling me they were PITI numbers. I felt misled by this and was annoyed by it and had a talk with the mortgage brokers about it and told them to be more clear with me. They said they'd give me a $150 credit on closing costs. After that I let it go, because honestly, I could have plugged it into an Excel spreadsheet (I had just figured out the PMT and IPMT functions) and checked the numbers myself and found out that they were telling me interest only numbers.

After the home inspection, we were waiting for the appraisal. During the brouhaha about the payment numbers, I took a night to think about whether I wanted to continue with them, so the appraisal wasn't ordered until the next day. Even with that, though, I wasn't sure that the appraisal was ordered as soon as it could have been. I was nervous about the appraisal because this house is a nicer house than other houses on the block and valued higher because of it - I was worried the asking price was too high.

The appraisal came back fine and I thought that was the end of it, but then I heard that my broker had mentioned to my agent that they were mildly worried about the possibility of the underwriters objecting to the value of the house.

Then on the next working day, I found out that that had gone through also. The final step was for them to run my credit a second time to make sure nothing had changed.

This is where the real problems started. My first credit check three weeks earlier had been great - three very high scores. There was also a fourth entry on there, but it was for a very bad misspelling of my name and I had never opened an account under that name, so I ignored it.

All of a sudden on my second credit check, I had two zeroes and only one high score. My broker called me and said that it had happened, and it had immediately triggered an "Exceptions process", where the loan had to be packaged up and sent directly to the underwriters for the company so they could consider an exception. (Before this point, they had been trying to underwrite it in-house, after which they would sell it to the lender.)

This took a week. The sellers moved out of the house, their fast closing date not even close to a reality.

The explanation given for the zeroes is that I had had no credit card activity over the previous six months, which is true. I've been debt free for a while and living off my debit cards - I thought that meant I was being good with my money. But it's bad. Warnings had showed up on my first credit report but I hadn't paid any attention because my scores were so high, and my brokers didn't draw those warnings to my attention. But, it was still suspicious that the scores would change so drastically so fast.

On the day the scores got declined, I called a bank where I had opened a corporate account, and asked if that may have affected it. They said no, but if it was a zero, it might just be because the credit reporting service was down, and the system would just need to be reset. I called my broker and told them this, but they said that that wasn't the problem.

So, a week later, after the exceptions process had exhausted itself, I was informed that the loan had been declined. This was a complete surprise to me and I was feeling sorry for myself. They offered me a different loan package that was 5.5% for the first and 8% for the second, a significant difference in monthly payment. While asking me this, they said that the first could be interest only for 5.75% or principal-required for 5.5% - I said I preferred the lower interest rate. While explaining it to me, they said that the 5.5% loan led to an increased monthly payment, while the 5.75% loan would have exactly the same monthly payment as my old loan. This annoyed me and I said, "You mean that this newer loan with an interest only payment is exactly the same as the old loan's principal plus interest payment?" They said, "Yes, that's right." That made me annoyed at them again because it was exactly what I told them not to do before - representing it as PITI when it was ITI. But I didn't say anything that time. This loan package was with First Franklin and had significant prepay penalties, which I didn't like.

I said I would think about it but they said they would need to know within an hour, so they could tell the underwriters at the office to start on it that night (a Thursday night) with the hopes of approving it the next day. I called them back at 4:00 and told them to go ahead and start the process. In parallel I spoke to another mortgage broker who wanted my business. He was worried I was being scammed although didn't have concrete reason to believe it yet. By this point I had asked my brokers point blank who my loans were with and they told me it was with Countrywide. After talking with this broker, I called Countrywide directly. I spoke to someone there who said it sounded like something was messed up with my credit scores, and told me the same thing that my bank had said a week beforehand; that it was probably because of a systems glitch.

I called my broker back at 6pm and he answered - I repeated the thing about the systems glitch to him, and he said that he had just heard something similar from a colleague, and that perhaps we had just discovered the same thing. That night I wrote him an upset note saying that I had warned them about that very thing a week beforehand.

The next day he wrote me back and said that they really had checked into that thing beforehand, but it wasn't as simple as a systems glitch; that I really did have a lack of credit card activity and that it was a problem. However, through talking with Countrywide, they found out part of the problem was that one of Countrywide's three scores was that awful misspelling of my name that had a zero. They were able to go into the system and require it to pull the valid one instead. So then I had two good scores and one bad score. It appeared the other one was possibly something similar, since they had credit records for multiple versions of my name. I eventually got through to them and had them correct the name errors, but I don't know what affect that has had on my credit score. Now, other brokers have told me that a good broker should have caught that from the outset. I don't know if that is reasonable. I do think they should have pushed harder to resolve the zeroes from the outset, though. At any rate, at 5pm that night, my broker called me back and said that after a lot of arm twisting and phone calls, he was able to get Countrywide to make the exception and approve the loan. Despite my feeling that that effort could have been taken earlier, I was quite complimentary to my broker in reaction.

So, we were finally back at the first loan rates. I relaxed for the weekend. I was told we would probably sign on Monday.

The sellers had agreed to let me move in early, and I will owe them a few days of rent for it. I got the keys over the weekend and set up all my services and utilities.

On Monday, I was packing boxes all day when my broker called me. He said that it was only the first loan that had been approved, but the second loan was 1.125% higher. The second was originally 6.3%, so I said, "So it's like 7.5%?" And he said "Yes, that's exactly what it is." I wasn't happy about this. The deal was that since my first loan with Countrywide had been declined, it triggered Wells Fargo to decline the second loan. Even though Countrywide reconsidered, Wells Fargo evidently would have taken 7-10 days to reconsider, and it wasn't guaranteed since I had that problem with my lack of credit card activity. He said I should go ahead and take the second loan with the higher rate (which was also through Countrywide), and then in a couple of months when my credit score was fine, I could just go ahead and switch over to Wells Fargo, and they would probably let me do it at no cost to me. So, grumble grumble, but okay.

An hour later I am asked to sign the next day. The next day was really crazy for me - movers showing up at 9 AM and my parents due in from Colorado immediately afterwards. I asked if I could do Wednesday, but they said it couldn't wait that long, and could I do it that afternoon. At 4:15 I'm asked if I can make it to the title company in time for the title company lady to leave at 5pm. I didn't like that because it's my first house and I was expecting my buyer's agent or my brokers to be there for questions or something ceremonial, or something like that. The title lady called me back and said we could meet halfway at 5:30, at a Starbucks. Whatever.

So I'm at the Starbucks and we're signing the papers for the first loan, the 5.125%. I don't see any mention of there being an interest only option. I call my broker and he answers, and said that he didn't set it up that way. I asked why not, and he said he probably screwed it up. That when we were talking about the First Franklin loan, I said I wanted the 5.5% without the interest only instead of the 5.75% with the interest only, and so he applied that thinking to the Countrywide loan. I hung up to call my agent, who wasn't available since it was after 6. I called him back and said I didn't understand why he would assume I didn't want the interest-only flexibility if it was at the same rate. He said it was different rates, and that he checked his notes and was sure he explained to me that to do the first loan at interest-only, it would have been 5.375%. I don't remember him ever repeating that figure to me and I think i would have remembered. But it's possible. He said that we could stop signing and take another few days to try and push it through as interest-only, but that he couldn't do it quickly because he already spent so much time calling in favors on the other loan. I hung up annoyed and continued signing.

In signing for the second loan, I see that it says 7.625% . He had said 7.5% over the phone. It's just an eighth, but at this point I'm so ticked off at all the circumstances that I'm getting pretty steamy. I call him back and he doesn't answer. I leave a nasty message saying that I know it's just an eighth, but there are all these little mistakes and none of them are in my favor. I tell him I'm considering having him redraw up all the closing papers and send them on to the title company the next day, with him eating every available margin. I then tell the title company lady that we'll finish signing the next day. In the meantime, I go ahead and accept the broker's gift - a basket full of food. On the way home I try calling again and get through to the broker. We end up yelling at each other for a while. He tells me that it was a slam dunk deal that just went sideways, that he's put himself through more stress than he's ever been through on a mortgage, that he's not making any money, and hell, he sure sounds like he feels like crap. I decide, fuck it. I let it go. I did not ever apologize for being nasty nor do I feel like I deserve to, but I explained to him that he needed to see it from my perspective - this was a lousy deal, a lousy experience, and I had three bad surprises on the day of signing, two of them while I was signing the papers. But inside I'm thinking, really, what the hell am I going to do about it? Threaten to not buy the house I've already moved into? Plus, I felt a bit indebted to the sellers, who had been so nice and understanding and flexible. My broker mentioned something about helping me with a free refi in six months - free for me if he could make the margins work out in a way to pay his costs. I'm not sure I will even take him up on it, because after pressing I found out that he's really only eating margins on the second loan, not the first loan, so I think he was exaggerating when he said he wasn't making any money.

I finished signing yesterday - there were no more surprises. I was told today at 3:15 that the deal "recorded", which means I officially own the house. In an example of extraordinarily fitting symbology, at the exact instant they left the message saying the mortgage process was finally completed, I was taking a dump.

After all that, I still haven't completely worked my way through how the closing deal was drawn up. There's something about how the closing costs of the second loan were transferred into the financing of the first loan... but the figures that were made most apparent to me were that closing costs were $5800 and that I'd get $2700 back - all my earnest money and then some, I think. I am not sure how much of the closing costs the sellers paid, it might be the $5800, or that might be an accounting thing and they might have paid the full $6000. I'm waiting for the check to be mailed to me in the next couple of days. I also owe a couple hundred dollars directly to the sellers for the few days of rent I've already been here.

So, in hindsight? It is hard to say what the verdict is. I think my brokers are not the best at dealing with problems. I can, however, see that brokers are used to dealing with large sums of money and are really not concerned about the impact of fractions of a percentage point on a monthly payment. Once you're into real estate, the name of the game is more how effectively you are leveraging someone else's money (the bank's), not the fractions of an interest rate. Someone like me who follows detail pretty closely is focusing on a different set of things than they would probably prefer. So I can imagine that me being upset about figures being misrepresented a bit here and there can very well just be an example of a first time home buyer freaking out over little things because he doesn't have perspective.

But all that said, it's my right. Their frigging job is to look at things from the first time home buyer's perspective, and provide a solid service, and either keep these details straight, or effectively manage my expectations. I know full well that most other buyers aren't going to follow or understand the details that I've been following, but it's not a flaw of mine that I follow this stuff - there are plenty of home buyers that don't even know they are on adjustable rate mortgages and they are going to be pissed when they find it out. Me being a little bit anal about my money is not going to be painted as an inconvenience to the people that I am paying.

There are things I don't know. I don't know how much money a mortgage broker actually makes by adding on percentage points to the rate a lender quotes them. I know it's always a split - partly an origination fee, partly a margin/spread they get from the bank.

And I don't know if it's cynicism or a gut feeling, but part of me believes these brokers weren't making all the margin cuts they could have, and quite possibly added some back in to justify their added stress. But it's also possible that they just worked their little hearts out to get me the best deal possible, and that like he said, it was just a slam-dunk deal that went sideways, and that they've never even seen problems like these happen before, and that they ate a lot of costs to bring it home. I could call FBNA to see if those loan rates ever existed at that time range, and First Franklin to see if the prepayment penalties were as high as they claimed, and Countrywide to find out the rates on their HELOCs, etc, etc, etc... or I could just work on decorating my house and give them the benefit of the (many) doubts and let it go.

Posted by Curt at September 2, 2004 02:07 AM