We originated a mortgage with Fieldstone mortgage in May of 2001. This loan was purchased immediately by Household Mortgage. In June they contacted us and told us that in 6 months they would do a zero closing cost refinance at a much better rate, if we would maintain a good payment history. We did.
Come December, our loan agent "Mike Mallory" talked to us about refinancing to an ARM of 7.2, locked for 2 years, no closing costs. We agreed... and at the closing the agent slid across the table to us a prepayment penalty written at 3 years. The agent was not from Household, and couldn't discuss it, but told us that we had a 72 hour right to cancel the deal - so we signed it, with the intention to call Mr. Mallory and find out what was going on - a mistake?
Mr. Mallory told us "Don't worry - it's just a formality. Just like this refinance, if you make your payments on time for the next 2 years, we will convert it into a 30 year fixed rate mortgage after 2 years."
Come this last December, we tried to do this - and surprise: they told us NO, WE WILL NOT DO THAT. Our rate was increased to 8.5 - and will now increase this June to 9.65. They also told us Mike Mallory no longer works there - which is a lie, we found him in the company directory.
Now, we got meet Dan Escobio - our new lender. Explaining to them that we cannot make these overinflated payments - that are against how the loan was presented to us anyway - he offered a "one time rate adjust." This rate adjust would put us at 7.9% - nevermind that if we did not have this prepay, even Wells Fargo, our bank, could refinance us under 6%. He then told us he had only to fax us the forms, and it would be a done deal. This is to help us make it to this December when we can refinance with anybody else...
And what do you suppose gets faxed to us? The rate modification, which states that it will continue the existing ARM terms, starting the clock again at 7.9%, and originate another PREPAYMENT PENALTY for 3 YEARS starting at the date of May 1st, this year.
When I called Dan, he told me "It's because your debt to income is too high - your current mortgage payment is prohibiting us from giving you a lower rate." Wonderful - this company is charging us more money, because their rates are too high, both creating the perception that our credit is bad (mid 3 agency scores in the mid 600s) and simultaneously crushing our DTIR.
When I asked about the prepayment penalty he only said, "It's the best rate anybody is going to give you, and if you don't take it just keep in mind we are raising your rate to 9.65% in June." Is it just me, or does that smack of extortion? We haven't signed it, needless to say.
Regarding our debt to income ratio - and this is ironic - my company is pulling out of Denver, and I need to buy a house in Arizona. Guess what? I qualified, on top of my existing mortgage (with a different lender of course) for a 300,000.00 loan at 4.9%. And that's assuming that I just leave the Denver house sitting empty, not selling it, leasing it, or anything. I guess my DTIR isn't all that bad.
We would like to sell our Denver house, but cannot - between the closing costs, zero equity, and the prepayment penalty, we are stuck (short of shelling out 30,000.00 which we do not have). I would like to add that we have never missed a payment, or been late on a payment, to this or any other lender, including our cars, credit cards, and school loans.
Household and Beneficial signed an agreement with the Federal Government to change its business practices with these prepayment penalties - including setting all new ones at 2 years. We have the papers faxed from them showing they are not doing this, despite their settlement.
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