Freddie Mac Betting Against Refinancing

Trying to get your mortgage refinanced? Good luck. The guys holding your papers may be banking on you never getting the lower rate.

http://www.npr.org/2012/01/30/145995636/freddie-mac-betting-against-struggling-homeowners

But public documents show that in 2010 and 2011, Freddie Mac set out to make gains for its own investment portfolio by using complex mortgage securities that brought in more money for Freddie Mac when homeowners in higher interest-rate loans were unable to qualify for a refinancing.

Those trades “put them squarely against the homeowner,” PIMCO’s Simon says.

Conflict of interest much?

Yeah. This looks bad. Just how “walled off” are the investing and guideline arms of Freddy? The thing that seems so damning (right now) is that Fannie isn’t doing the same thing. From a guidelines perspective, the two are indistinguishable.

Freddy has been an archetype for conflicts of interest for years now.

I am closing on a refinance today with Chase. It’s a no fees rate reduction loan, basically there way of keeping me a customer. My interest rate will go from 6% to 4.5% and we will be extending the loan from the current 21 years back to 30. There is no early payment penalty so we plan on paying it down early.

I had looked into refinancing with Wells Fargo but they did have fees and in order to but it down would have costs more, but were willing to make the deal.

Is your APR the same interest rate as the rate on your Good Faith Estimate?

Yes…the people I have dealt with actually told me the purpose of this program was to try to keep people in their Chase mortgages so that they wouldn’t re-finance elsewhere. They make their money on the added 9 years with me.

I guess having a good credit record and both the wife and I working helps.

Good deal. A lot of times they’ll tell you “no fee” and it means “no origination fee.”

Is your rate a par rate, or are they making some yield on the back end?

Straight 4.5% 30 year mortgage with no fees or costs anywhere. But as I said, they have told me that the purpose of the program is to keep current “good” mortgage holders. I am sure if our house was under water or we had employment problems this would never have been offered.

We had Quicken Loans offer us a loan at a very good rate/fee set-up but when they found out the house was in a Family Trust they backed off saying they didn’t do those. No idea why.

As I understand it, you generally have to take the property out of trust to do the loan, and then put it back in the trust after the loan is funded.

Not sure exactly what the rationale is. If I had to guess, it’s because the bank is issuing a loan based on your credit score and using your house as collateral. Your family trust doesn’t have a credit score.

Yield spread premium isn’t a fee. It’s the originator making extra money by charging you a higher rate. A par rate is the lowest possible rate you can get without paying money out of your pocket. I have no doubt Chase has a program like you describe, though I’d be interested to see if it’s really a HARP loan. Did you have to do an appraisal?

We re-financed 9 years ago (from 7.5 to 6% I think) and it involved an appraiser and several fees we paid both up front and in the loan. This has featured none of that, although I am sure someone has checked home values etc in the area. This program was only for a 30 year loan, when I asked about a 15 year loan or buying down the loan I was told those were not being offered. Wells Fargo was willing to do that but of course they were charging for everything. But even so, I think it was going to cost me something like $1k +/- to get a 30 year loan at 4.25 ( I think that was what they quoted me).

By restructuring it to 30 then the principle/interest equation has reset as well, which is where they make their money. I’d be curious to see the comparison between your old loan’s payment at 21 years and the new payment at 30.

H.

If you didn’t have to get an appraisal, it is a HARP loan. Our bank (Wells Fargo) called us about one. We just relocated and are leasing out our old house. The guy from Wells basically said that investment properties didn’t fit the criteria, but we should just lie to the processor about it. We passed.

With no escrow payment the old was $607, the new is $441. We do plan on paying it off sooner than the 30 years though.

I don’t think it will wash the difference, but you will have a smaller write-off on your federal income taxes from the lower interest rate. That said, still a good deal.

Isn’t it legally still a home until it has been leased out for one year? My brother handles my aunts estate and he is currently renting her house to get the benefits (aside from rent) that accrue if the property is sold as a investment property rather than as a residence (with no new residence being purchased).

Mortgage as a write-off doesn’t matter as with that size loan you are better off just going the old standard deduction way. We have no other large expenses to itemize.

We’d have to sign an affidavit of occupancy at closing, as will you when you close your owner-occupied refi. Not really all that interested in mortgage fraud.

Scuzz, where the hell in CA do you have a house with a monthly of $607, let alone $441? I’m guessing you’ve got monster equity in the property?

Central California…Fresno area. We have owned the house for 18 years. Paid $145k…at the top of the realty boom houses around us were selling for over $400k…now, they are going for mid-to-low $200’s.