Close refi on Monday, start new refi on Tuesday... what then?

sgip

Well-known member
I'm pretty certain most serial refinancers have closed one refi on a Monday and started a new refi on a Tuesday. Because of this practice, many lenders will have this sort of warning in their application documentation:

"We are aware that by signing this form we acknowledge that we have been completely forthright.  We have no intent to sell and or refinance our property within the next 6 months. We are aware that mortgage fraud is punishable by FBI with possible jail time and/or monetary penalties.  We are aware that if we refinance or sell our home in the next 6 months that we may be held responsible for paying back any credit given to us by COMPANY X during the course of the transaction."

First - the "FBI" warning is a non-enforceable scare tactic. Refinancing when you want to is not fraud. Second - the "May be held responsible" is fuzzy at best. "May" is not "Will" so you can disregard it IMHO.

That said, has anyone ever had letters of demand, phone calls, threats or other issues about recapture of lender credits presented to them in situations where you've closed a refi on Monday and refinance again on Tuesday?

My .02c
 
I know our rates have been conducive to refinancing, but what is the financial benefit and how does it work? Sans obvious lower rate or same rate and credits to principal.

Is it floating the payment, like revolving credit cards, negative points to trickle down the rate rolling the credits towards principal? Kick backs from the brokers?

If I can shave an 1/8th point off and not take money out of my pocket to do it, that?s straight forward. If I can keep my rate and put money towards principal, that?s straight forward.  Both of those are covered under there?s a better deal today than two weeks ago, or a month ago, which is when someone likely locked the loan that close yesterday.
 
There are some serial refinancers who have no intention of paying off their loan - that's neither a good or a bad plan, just one that works for them. If a borrower closed in July at 2.75 on a $500k loan, and sees in August a 2.50% rate loan with little if any costs, that will save them about $65 per month more or less. It's a "no brainer" given -0- costs. 

Some borrowers who closed at 2.75 on a 30 might see a 15 year at 2.125, a rate and term they now believe they can fit into. Since this new refinance is at zero cost, it also is a "no-brainer".

The post question is primarily about the lenders reaction. The funding company (Lender X)  made the loan at 2.75%, then sold that loan for $$$ to a servicer. Now with the loan being paid off in less than 30 days since the first payment is being made, that servicer is going to ask Lender X to repay $$$ for an early payoff penalty. Lender X is cascading that $$$ to their soon to be former borrower saying in essence "HAY... you might owe us $$$ for paying off your loan in under 6 months"

Has anyone gotten that request? If so, did you laugh, pay it, or ?

My .02c
 
Soylent Green Is People said:
There are some serial refinancers who have no intention of paying off their loan - that's neither a good or a bad plan, just one that works for them. If a borrower closed in July at 2.75 on a $500k loan, and sees in August a 2.50% rate loan with little if any costs, that will save them about $65 per month more or less. It's a "no brainer" given -0- costs. 

Some borrowers who closed at 2.75 on a 30 might see a 15 year at 2.125, a rate and term they now believe they can fit into. Since this new refinance is at zero cost, it also is a "no-brainer".

The post question is primarily about the lenders reaction. The funding company (Lender X)  made the loan at 2.75%, then sold that loan for $$$ to a servicer. Now with the loan being paid off in less than 30 days since the first payment is being made, that servicer is going to ask Lender X to repay $$$ for an early payoff penalty. Lender X is cascading that $$$ to their soon to be former borrower saying in essence "HAY... you might owe us $$$ for paying off your loan in under 6 months"

Has anyone gotten that request? If so, did you laugh, pay it, or ?

My .02c

Isn't that essentially a prepayment penalty?  I just refi'd with Owning and there is no prepayment penalty, nor do I recall signing any document agreeing to not refi again in the next xx months. 
 
If there is no specific language related to a prepayment penalty in the refi documents then the lender/servicer can go pound sand if they lose money when you refi again within a month.
 
I am no industry insider but as a consumer, this is what i think is going on:

Historically, and even today for some people, closing on a mortgage transaction has been a challenging and time consuming endeavor. The lenders, by choice and by limitations of regulation banked on the fact that if I lent $ at rate r% today, borrower is not likely to take on the headache to refi for an 1/8th or a quarter pct lower rate. For serial refinancers it is not a problem at all.

Ideally, a lender should themselves offer a lower rate and avoid losing the business. They lose Joe and offer the today's lower rate to jane that walked through the door. In reality, they already have a business relationship, payment history etc wit Joe. They know Joe much better than they know Jane as a borrower.

The whole thing is nonsensical. In the end both Joe and Jane get today's lower rate but lot of papers get shuffled, lot of businesses and people make living (title, escrow, LO, appraisers, notary...and so on).
 
Sgip,

What happens to LO and other employees commission When loan closes within a month of opening? Their effort and time spent is wasted? Or they get to keep their commission because they delivered on the file till funding?
 
I am now on my third refinance, having just paid off the 2nd bank in the middle in which the loan was a hair tad under 30 days. I did not even make a mortgage payment to them.

Now, my 3rd lender is possibly going to be paid off within 30 days by the 4th lender.

How would any of them lose money?  I'm paying them daily interest every day! I have a right to borrow $10 from Joe on Monday and promise to pay him back $12 by Friday. But if Jane comes along on Tuesday and offers me the same $10 loan and asks me to repay her just $11 by Friday, then why not? I'll use Jane's money to pay off Joe early.


"It's just business."

 
serial refinancer said:
I am now on my third refinance, having just paid off the 2nd bank in the middle in which the loan was a hair tad under 30 days. I did not even make a mortgage payment to them.

Now, my 3rd lender is possibly going to be paid off within 30 days by the 4th lender.

How would any of them lose money?  I'm paying them daily interest every day! I have a right to borrow $10 from Joe on Monday and promise to pay him back $12 by Friday. But if Jane comes along on Tuesday and offers me the same $10 loan and asks me to repay her just $11 by Friday, then why not? I'll use Jane's money to pay off Joe early.

What's the rate you're getting now to refi again?

"It's just business."
 
serial refinancer said:
I am now on my third refinance, having just paid off the 2nd bank in the middle in which the loan was a hair tad under 30 days. I did not even make a mortgage payment to them.

Now, my 3rd lender is possibly going to be paid off within 30 days by the 4th lender.

How would any of them lose money?  I'm paying them daily interest every day! I have a right to borrow $10 from Joe on Monday and promise to pay him back $12 by Friday. But if Jane comes along on Tuesday and offers me the same $10 loan and asks me to repay her just $11 by Friday, then why not? I'll use Jane's money to pay off Joe early.


"It's just business."

I share your sentiment, it is just business.

The lenders do stand to lose money because 29 days of interest you paid is just that, interest. The lender has employees, hourly cost, overheads and all...which they stand to lose as sunk cost when loan is closed early. If they got paid upfront for issuing a loan, then the investor who paid upfront to the lender hoping that he/she would make interest income over 30 years now finds his pile of cash coming back to him on day 30, only to find yet another lender to pay to lend his money. Someone somewhere loses money, for sure.
 
This maybe a set up started by a person who is licensed and works for a lender. I would not post anymore.
 
Cornflakes said:
serial refinancer said:
I am now on my third refinance, having just paid off the 2nd bank in the middle in which the loan was a hair tad under 30 days. I did not even make a mortgage payment to them.

Now, my 3rd lender is possibly going to be paid off within 30 days by the 4th lender.

How would any of them lose money?  I'm paying them daily interest every day! I have a right to borrow $10 from Joe on Monday and promise to pay him back $12 by Friday. But if Jane comes along on Tuesday and offers me the same $10 loan and asks me to repay her just $11 by Friday, then why not? I'll use Jane's money to pay off Joe early.


"It's just business."

I share your sentiment, it is just business.

The lenders do stand to lose money because 29 days of interest you paid is just that, interest. The lender has employees, hourly cost, overheads and all...which they stand to lose as sunk cost when loan is closed early. If they got paid upfront for issuing a loan, then the investor who paid upfront to the lender hoping that he/she would make interest income over 30 years now finds his pile of cash coming back to him on day 30, only to find yet another lender to pay to lend his money. Someone somewhere loses money, for sure.

correct me if i'm wrong but my understanding was that these mortgages are bundled and sold together to fannie and freddie, not per individual mortgage per investor? 
 
I am not in the industry but I'd imagine that lending club pretty much copied the mortgage model for personal loans.

Say you are an investor and has $25 to lend. Your arrangement with Lending club is that they will deduct 1% of each pmt as their fees. You don't mind because you lend $25 today, with interest and principal...you are expecting total payments of $32 in 36 months. Lending club will take its cut and you are still left with $31.x.

You receive first payment, or even before 30 day mark, the borrower paid back $25.35..loan paid in full. After 1% cut, how much money left in your hand? This calculation assumes 18% APR and you stand to make 10 cents. WHat if you lent money at 6% APR? You will have less than $25 in your hand at the end of a month.

Mortgage of course is much more expensive process than automated $25 lending on a platform.

Now that investor could be an individual, pension fund, or govt. ANd it is a one $25 note or one of 10000 notes an institution is investing. The point is, on that note the investor is holding the bag.

But, it is the business they are in.

 
Regarding the commission penalty/clawback question , much of it depends on the lender and then how fees were paid. Examples:

Bank - Never a clawback or Early Payoff Penalty (EPP) to originating LO or local branch. The mothership takes the hit.

Mortgage Bank - Often no clawback to loan officer, but branch Profit and Loss does take the hit. If commissions were paid by a lender rebate, the clawback can be significant ($20-40k for the Early Payoff Penalty and commissions paid). If commissions were paid by the borrower, then no clawback but EP penalty would still hit the P&L.

Small Broker/Banker - Often a wipeout for the company and individual when 2 or more EP's happen in a month. The funding lender will charge the EPP and possibly shut off access to fund loans through their conduit. A "Fatal Move" in many cases.

"Often" does not mean "Always" as every company has individual rules. This is a general answer to the OP question.

My .02c
 
What happens when lender B tries to pay off lender A who has already transferred the loan?

You first refinance with lender A who plans to transfer your loan within 30 days after close. So after you closed with lender A, you start a second refinance with lender B a couple days later. Lender B then requests payoff statement from lender A 10 days into the process, and lender A then sends that payoff statement to lender B good for up to day 30. But meanwhile, lender A has scheduled to transfer your loan out at day 25. Lender B is now scheduled to close and settle on day 27th.  Lender B wires the funds to escrow and escrow wires to lender A. It is now day 28th, and lender A receives the funds in their account for a loan that has already been transferred.

So what happens at that point?

Lender A sends the money to the new loan servicer or does lender A return the funds to escrow, thus all monies back to lender B? and so now lender B has to do more work to figure out who lender C is?

Please advise.

 
Say, you have a loan active for few years then the servicer is changed. Starting next month, you are to make payments to new servicer. Guaranteed, if you sent the pmt to old servicer becasue you forgot to change your bill pay settings, the payment will make it to the new servicer and post. They typically account for this kind of things.

New loan should have same kind of mechanism.
 
Recently I?ve been hearing that brokers are requiring that you agree to a 6-month prepayment penalty if you refinance through them. If that is the case, one should turn around and run as fast as possible out of the door. Who would agree to a 6-month pre-pp when rates are so volatile? Nobody has a crystal ball just like nobody ever thought a 30-year could fall below 2.5%. Is it possible that a 30-year could hit 1.99%? We shall see. I think the only way I would lock into a 6-month pre-pp with a broker today is if they offered 1.875% on a 30-year conforming no closing costs.
 
serial refinancer said:
Recently I?ve been hearing that brokers are requiring that you agree to a 6-month prepayment penalty if you refinance through them. If that is the case, one should turn around and run as fast as possible out of the door. Who would agree to a 6-month pre-pp when rates are so volatile? Nobody has a crystal ball just like nobody ever thought a 30-year could fall below 2.5%. Is it possible that a 30-year could hit 1.99%? We shall see. I think the only way I would lock into a 6-month pre-pp with a broker today is if they offered 1.875% on a 30-year conforming no closing costs.

I would say high 95%+ of brokers that will require this. Maybe even direct lenders will.
 
I got this from my current lender today....I guess there is no way to avoid signing this 6 month rule. Will the lender come after you if I refinance within 6 months, I don't know....any thoughts?
Note is amended as follows:
If within 6 Months from the date of execution of the Security Instrument I make a Full
Prepayment or a Partial Prepayment, I will at the same time pay to the Note Holder a
prepayment charge. In no event will such a charge be made if is expressly prohibited by
state or federal law. The prepayment charge will be equal to Six (6) months advance
interest on the amount of any prepayment that, when added to all other amounts
prepaid during Six (6) month period immediately preceding the date of prepayment,
exceeds 20% (twenty percent) of the original principal amount of this Note.
 
That was received after the loan closed?  What next, they'll amend the interest rate and doc fees too?  Screw that.
 
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