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They refinanced four times in four years?

I love Diana Olick. Not in a creepy way, I promise. It’s a purely professional infatuation. In my opinion, she is the CNBC reporter who most honestly covered the housing demise as it first began unfolding. It’s why I experienced such heartburn when I read the title of her most recent article.

Falling Mortgage Rates Spur Serial Refinancing

Why the heartburn? My first impression was that I was going to read that we were back in the “aughts”, that magical time before the bust, when the refinance business was going gangbusters.

Fortunately nobody tried too hard to spin that tall tale.

The drivers of the first refinance boom are now gone. Certainly there will be an uptick in the numbers now that rates are beginning to drop again. My loan officer friend Keith Yamamoto tells me that he has several applications sitting on his desk, each waiting for a particular rate to proceed.

But it would be unexpected if refinance volumes were to increase significantly.

The beginning of the article focuses on a married couple who refinanced four times in the last four years. For the vast majority of homeowners that’s excessive, though I admit that I’m impressed that this couple was able to perform such a feat in this lending climate. I think that tells us that this is not your ordinary couple.

Now it’s true that refinancing can save money. It may even be true that this exceptional couple benefitted tremendously.

But serial refinancing is a dangerous game that eats equity quickly, and can trap a homeowner in a cycle of debt dependence that causes them to make bad decisions, and by the sounds of it, that’s just what this couple did by moving from a fixed rate loan to an adjustable.

For this particular couple, let’s hope that when Tim Geithner is put out to pasture, that we don’t have a Volcker style treasury secretary who reigns in the Federal Reserve (the real reason for current low rates) and pushes rates through the proverbial roof. Because they will certainly lose their literal roof if they find themselves refinancing into the same equity trap that so many homeowners now find themselves in.

A Bank of America branch in Collier County, Florida was shut down for over an hour by sheriff’s deputies for failure to pay legal fees stemming from a wrongful foreclosure case brought against a couple who in actuality, owned their home without any mortgage.

Justice… it’s not a word that we use often here. Banks are brazenly defying court orders and flouting the law. Perhaps that’s why it feels so good when it happens not just once, but now twice.

“After about an hour of being locked out of the bank, the bank manager handed the attorney a check for the legal fees”.

Such sweet, delicious justice… Be sure to click the link for the full story.

None of this had to happen if the “powers that be” had been actually enforcing consumer protections instead of paying lip service to them, but I digress…

John Doe: Part III in a series
By “The Loan Ranger”

When Darkness Falls

Do you feel more comfortable on “Main Street” than “Wall Street”?

In 1992, Wells Fargo certainly spent a few ad dollars convincing television viewers that they were the bank of the “Common man”, the “Common man” being a reference to anyone other than a “Wall Street” inhabitant.

After all, if you’re on “Wall Street”, you’re a “Master of the Universe” as they so humbly refer to themselves.

I don’t know about you but I certainly prefer “Main Street”. I hear those “Wall Street” types are sneaky and deviant tricksters who trap the “Common Man”, the producers of things of actual value, into debt bondage, and then strip them of everything not protected by bankruptcy laws.

Was that hyperbolic?

Perhaps…

John was understandably relieved that his independent loan originator had steered his loan to Wells Fargo. John smiled to himself as he waited on hold to hear the answer to his inquiry. After all, what he was asking was reasonable. He had gone along with “The Plan”.

Oh I’m sorry, have I not yet discussed “The Plan”? Well, allow me to correct that egregious omission forthwith!

“The Plan” was based on the bedrock tenet that house values only go up. They never, ever fall…

Ever.

To even propose such a thing was preposterous beyond comprehension!

The plan was simple. Apply for an Adjustable Rate Mortgage in order to qualify for a higher loan amount than otherwise possible with a fixed rate loan, then refinance if rates start to rise.

But what happens if rates rise while the prepayment penalty is still in effect? At one time it didn’t seem to matter much. The equity build up made the prepayment penalty seem like nothing but an annoyance fee.

The smile left John’s face when he hung up the phone. The “Main Street” bank he saw on T.V. was nothing more than a “Wall Street” bank in disguise.

They refused to work with John. He hung on for two more years before going into default in late 2010.

Next Up: A new hope on the horizon