Shop around if refinance stalled

Question: My sister-in-law is trying to refinance her home. She has roughly $250,000 equity in a $550,000 home.

She applied back in early August and now we are almost in November. Her lender tells her everything is set to go but then keeps stalling asking for more verification info.

We are dumbfounded as to why this is happening. Credit history and income requirements are no obstacle. Her lender is not responding to her daily phone messages. To whom should we call or write to light a fire ending this nightmare refinance?

S.R., Everett

Answer: I’m sorry to hear that your sister-in-law is having so much trouble refinancing her home.

If her income and credit are good, as you indicated in your letter, it should take no longer than 30 days from start to finish to do the job. However, sometimes people think their credit is better than it really is, so unless you have seen her credit report you may not know for sure that her “credit history is not an obstacle.”

But let’s assume that you are correct and that your sister-in-law’s income and credit are both fine, what could be causing this unjustifiable delay?

As a longtime mortgage company owner myself, I know some of the things that may be going on behind the scenes. Here are some possibilities:

One possible explanation is that some loan officers and the mortgage companies that they work for are simply incompetent, unethical or both. I hate to say that, but it’s true.

Thousands of people jumped into the mortgage business during the big refinancing boom a couple of years ago and many of them received little or no proper training. Fortunately, a lot of those incompetent people have been forced out of the mortgage business during the current credit crunch, but some still remain.

So your sister-in-law may be working with somebody who simply doesn’t really know how to properly process her loan.

Another possible explanation is that the mortgage company may have promised to deliver an interest rate that is no longer available, and so they are stalling and hoping that rates drop.

Rather than actually locking in your interest rate with the loan, some mortgage companies float the market and hope to get a lower interest rate (and make a bigger profit) by the time they close the loan and actually have to provide the funds.

Sometimes the mortgage market goes up and the mortgage company either has to eat the loss or make up excuses not to fund the loan. I hope that the latter is not the case with your sister-in-law’s loan.

Yet another possible explanation is that the lender’s underwriting guidelines may have changed.

Ever since the subprime mortgage market for borrowers with poor credit collapsed earlier this year, lenders have been tightening the loan qualifying standards for many loan programs — even those for borrowers with good credit. So it’s possible that the lender is now requiring additional documentation in order to approve the loan program that your sister-in-law applied for, even though that documentation may not have been required when she originally applied for the loan back in August.

Since this is a refinance and not a purchase loan, your sister-in-law does not have a closing deadline, so the best solution is to have her contact a couple of other banks and mortgage companies. She may be able to get a better interest rate than what she is supposedly getting from the lender with whom she is working.

Mail questions to Steve Tytler, The Herald, P.O. Box, Everett, WA 98206 or e-mail him at economy@heraldnet.com.

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