- The Washington Times - Wednesday, May 18, 2005

Q:Back in February, we applied to refinance our Federal Housing Administration

loan and our equity line to one conventional loan. Our rate was 5.50 percent with mortgage insurance, and our line of credit was at prime.

We made arrangements with a mortgage company through e-mail and telephone conversations. We were promised a 5.125 percent rate with no mortgage insurance.

We were supposed to close at the end of March, but the mortgage company couldn’t complete it.

The loan officer told me that our rate was locked and that we would be closing at the end of April. Then, at the last minute, the lender told me there was a problem and I couldn’t get the loan I agreed to. After a lot of complaining, they agreed to a 5.375 percent 30-year fixed rate.

This costs me $32 more per month. Should I have handled this differently, and is there anything I can do to make them pay for the extra cost I have incurred?

A: Yes, in my opinion, you should have handled the situation differently, but no, I doubt you can make them pay for the extra cost.

My first question to you concerns the circumstances surrounding the initial contact with this company.

There are a lot of good, competent lenders and brokers out there, but there are also a lot of bad ones. I am constantly reminding readers that the best way to choose a lender is to seek out recommendations from trusted sources, such as family members and work colleagues. Folks who have both good and bad mortgage experiences are glad to pass on the information.

If you are unable to get referred, there’s nothing wrong with making a few phone calls. You will be surprised at the wide degree of competency in this business.

Choose a broker or lender who appears the most knowledgeable and helpful. If you feel that you’re getting the hard sell, beware. In my opinion, the mortgage business is too complex and has no need for the used-car-salesman tactic.

Your e-mail to me omits many details. There are several questions you should have asked, with many possible answers. Here are some:

m The lender couldn’t close at the end of March. Why? Was there a problem getting the appraisal in a timely manner? Was the underwriting department backed up? Or did your file simply end up in a stack of papers and ignored for three weeks? This is a common problem with incompetent companies.

m Your loan officer said you were locked but your rate couldn’t be honored because of a “problem.” What problem? You have a right to know, and there are a lot of possible explanations.

Did the loan officer forget to secure the rate lock with the investor, the ultimate buyer of the loan? Did the property appraisal come in lower than anticipated, which could have raised the loan-to-value ratio? Were your credit scores high enough for the original loan program?

Let me make a couple of guesses. It’s certainly possible that your property didn’t appraise to the value necessary. Because you paid off an equity line, your loan is considered a “cash out” refinancing. Most 30-year fixed-rate loans will charge a higher rate for a cash-out refinancing if the loan amount exceeds 70 percent of the appraised value.

But I don’t believe this was the problem. Why? Because the loan officer would surely have told you. A good loan officer apprises his customers upfront and early in the process of any potential problems, such as a needed appraised value, so the customer knows what’s going on.

I doubt your credit history was the problem. If your credit scores are too low to get approved for a standard conventional mortgage, any alternative program would have been at a much higher rate than 5.375 percent, and you certainly would have been told.

Let’s look back and see what kind of interest-rate movement we had. Coincidentally, I see that long-term mortgage rates went up by a quarter of a percentage point from the end of March to the end of April.

Now here’s why I don’t think you will be successful in making the lender pay your extra cost. By law, all refinance customers have three business days after settlement to rescind the deal. You had an opportunity to back out.

My advice is too late, but let your experience be a lesson to other readers. You have a right to know exactly what’s going on with your mortgage. If you are getting the runaround and the explanation is not satisfactory, ask to speak with the manager in charge. Be assertive. If that still doesn’t work, contact the company’s regulator and file a complaint.

• Virginia: www.scc.virginia.gov/division/banking/complaint.htm

• Maryland: www.dllr.state.md.us/finance/frcomplaints.htm

• District: http://dbfi.washingtondc.gov/dbfi/site/default.asp

Henry Savage is president of PMC Mortgage in Alexandria. Contact him by e-mail (henrysavage@pmcmortgage.com).

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