Q&A: Making Homes Affordable Refinance Program?

Posted on Oct 8, 2012 in Unique Loan Programs

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Question by AColling74: Making Homes Affordable Refinance Program?
I need some clarification on this program. I am not in any hardship, generic but I do have a Fannie Mae loan. Currently, I am in a 5-year ARM and it is up in May of 2010. My rate is 5.375% and it would go down to approximately 5.1%.

Today I finally got somewhere with my lender CitiMortgage. We started to look at the refinance option and I would have $ 4,600 rolled over into my existing loan for closing costs and $ 460 out of my pocket for an application fee which includes an appraisal. My payment would be only be $ 12 lower per month, but my rate would be locked.

For some reason the numbers don’t add up to me. The closing costs and fees seem to high. Am I missing something with this program?

Best answer:

Answer by J.J.
First, I can’t tell if $ 4,600 is high without knowing how much your mortgage is worth. On a refinance there are still significant transaction costs.

You need to get a “good faith estimate” from the lender. When you look at it, figure out which costs are “fixed” – i.e. charges by your state for recording a mortgage, costs for pre-paid taxes and insurance (should be low on a re-fi as most of that stuff is already escrowed hopefully).

Then, figure out how much of the “cost” is fees and/or padding. A “fair” fee is somplace between 1% and 3% of the total amount of your loan. So if your loan is for $ 100,000 then the lender might charge you between 1,000 and 3,000 as a “fee” – sometimes they say their fee is lower or non-existent – but, trust me, they are getting their fee some way – they may be calling a discount point or service release premium or something – but they are getting it.

Short story made long – pour over that settlement statement (also known as a HUD-1) and ask questions questions questions about ANYTHING you don’t understand. If your lender balks at your questions, walk away.

Second, I would shop around before settling on CitiMortgage – just because they are your current lender does not mean that they will necessarily give you the best rate.

One thing to try is to go with an up-front lender like Amerisave that shows you guaranteed costs and fees breakdown long before the actual refinance.

Finally, the Making Homes Affordable Refinance Program has nothing to do with closing costs. It is all about negotiating with lenders over principal and interest. There are lenders out there making a KILLING off the fees in these things. That is why you need to GRILL your loan officer.

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