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Author: SABOB Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 127777  
Subject: Mortgage Issue Date: 2/21/2013 4:54 PM
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Not sure if this is right board, but am curious about almost continuous approaches by Wells Fargo Bank to re-finance- no cost. Am currently at 4.85% and this one would be nearer to 3%. Only downside is going to 30 years from 25 years but who cares as we will not live so long; it is just rent as far as I am concerned. Difference would be $250 per month- why not?
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Author: pauleckler Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 124824 of 127777
Subject: Re: Mortgage Issue Date: 2/21/2013 10:40 PM
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There have to be expenses associated with refinancing. "No cost" means those costs are hidden somehow. You had better understand how they are being paid. Increasing the loan principle is one way. Refinancing usually would involve appraisal and legal fees to record the paperwork. Are costs hidden in some line item on your closing statement?

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Author: mmrmnhrm Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 124825 of 127777
Subject: Re: Mortgage Issue Date: 2/22/2013 12:12 AM
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Might they have found a defect in the original paperwork or underwriting, and this is their way of quietly making the problem disappear?

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Author: CCinOC Big funky green star, 20000 posts Top Recommended Fools Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 124826 of 127777
Subject: Re: Mortgage Issue Date: 2/22/2013 12:39 AM
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The newly revised Regulation X that governs the newly revised Good Faith Estimate (form)--now undergoing its fourth interation--makes it impossible for any costs to be hidden. Simply review the GFE. It's all there, plain as the nose on the consumer's face.

http://www.hud.gov/offices/hsg/rmra/res/gfestimate.pdf

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Author: CCinOC Big funky green star, 20000 posts Top Recommended Fools Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 124827 of 127777
Subject: Re: Mortgage Issue Date: 2/22/2013 12:43 AM
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Might they have found a defect in the original paperwork or underwriting, and this is their way of quietly making the problem disappear?

Wells Fargo Bank is numero uno in loan origination. I doubt they're covering anything up.

http://www.fool.com/investing/general/2012/11/28/the-5-bigge...

If the borrower is saving on his monthly payment, and nothing is being added to the principal balance, he should go for it. He can continue to make the payment he's making now, thereby shortening the amortization period to <= what it is now.

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Author: mmrmnhrm Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 124828 of 127777
Subject: Re: Mortgage Issue Date: 2/22/2013 1:15 PM
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Wells Fargo Bank is numero uno in loan origination. I doubt they're covering anything up.

Just because you're #1 and do a metric crapton of originations doesn't mean someone didn't make an honest mistake. Apart from origination fees, I can't see why WFB would be calling someone with a "ReFi now to a lower rate!" offer... there's no money in it for them.

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Author: Dwdonhoff Big gold star, 5000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 124829 of 127777
Subject: Re: Mortgage Issue Date: 2/22/2013 1:35 PM
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I can't see why WFB would be calling someone with a "ReFi now to a lower rate!" offer... there's no money in it for them.

Easy; Their new originations department have a prospecting list of qualified names to call. The normal distribution of all mortgage holders would naturally include a large portion as Wells borrowers. The origination department *may* be actively focused on soliciting existing Wells borrowers because they may be able to reduce some of the new origination costs since they are both the new and old servicer.

As to why they'd actively ask the borrower to pay them less money?
They know that if *THEY* don't chase the refi & get 75 cents on the dollar, somebody else will chase it and they'll get 0 cents on the dollar. IOW: portfolio retention.

Cheers,
Dave Donhoff
Leverage Planner

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Author: crackdclaw Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 124830 of 127777
Subject: Re: Mortgage Issue Date: 2/22/2013 1:36 PM
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Not sure if this is right board, but am curious about almost continuous approaches by Wells Fargo Bank to re-finance- no cost. Am currently at 4.85% and this one would be nearer to 3%. Only downside is going to 30 years from 25 years but who cares as we will not live so long; it is just rent as far as I am concerned. Difference would be $250 per month- why not?

You're at the right board. Agree, why not do the refinance. You may want to follow up with some questions. Generally people lump a few different refinance approaches under "no cost", when there are differences. Quick breakout:

No Cost refinance - closing costs are rolled into the loan, no cash needed from borrower. Really not a no cost, more accurately a no cash.

No Cost refinance - using Lender Credit to pay closing costs. If current market rate is 3.5%, you accept a higher rate, say 3.625%, and the bank provides a lender credit to pay closing costs. Not really a no cost, the cost is accepting a higher than market rate. However, a great tool to use, as there is no cash from borrower and no costs rolled into the loan.

No Cost refinance thru current lender Wells Fargo. This may be there "3 step" refinance. There is no appraisal, minimum documentation, behind the scenes title work, and closing is handled thru the mail with you signing new loan documents in front of a notary. This is the real "no cost", as you will be refinanicng your exact loan payoff amount. It's called a 3 step, but it really is a streamlined HARP refinance. HARP is a government backed program. I'm not sure why you are only being offered a 25YR fixed, you should also have 15/20/30YR available.

Talk to someone at Wells, see if what you are being offered is a 3 step HARP refinance. Those are the loans being done at no cost to borrower.

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Author: crackdclaw Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 124831 of 127777
Subject: Re: Mortgage Issue Date: 2/22/2013 1:41 PM
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I can't see why WFB would be calling someone with a "ReFi now to a lower rate!" offer... there's no money in it for them.

I believe about 20 to 25% of total earnings for Wells Fargo last quarter was thru their mortgage division. They make plenty of money on mortgages.

Their offering to refinance a loan they probably don't own, it's likely owned by Fannie or Freddie. They service the loan and receive a fee for providing this service to the borrower and to the investor (Fannie / Freddie). When they originate a new loan they will receive fees for the origination and sale of the loan, right back to Fannie or Freddie. They will also probably continue to service the new loan, and receive a fee for servicing. I can't see why they wouldn't be refinacing their current portfolio of serviced loans. It's a windfall for the bank.

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Author: holhealthprac Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 124832 of 127777
Subject: Re: Mortgage Issue Date: 2/22/2013 2:34 PM
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I also recently received a similar offer from Wells Fargo. When I read the fine print on the back of the letter, there was a statement that said something like "Refinancing a mortgage of $X at Y% will result in 360 monthly P & I payments of $Z."

The $Z number was over $100 more than I would have expected for the mortgage amount and offered interest rate. They had clearly rolled something into the principle (most likely the closing costs). They didn't explicitly state anywhere in the letter that the principle would be increased.

The OP might want to take a look at the back of the letter to see if Wells Fargo spells out the monthly P&I payment. It might not be quite the deal it appears. It could still be worth it, however.

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Author: CCinOC Big funky green star, 20000 posts Top Recommended Fools Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 124835 of 127777
Subject: Re: Mortgage Issue Date: 2/22/2013 8:39 PM
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Apart from origination fees, I can't see why WFB would be calling someone with a "ReFi now to a lower rate!" offer... there's no money in it for them.

What?! How do you figure, if originating loans is Wells Fargo's business.

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Author: CCinOC Big funky green star, 20000 posts Top Recommended Fools Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 124836 of 127777
Subject: Re: Mortgage Issue Date: 2/22/2013 8:44 PM
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As to why they'd actively ask the borrower to pay them less money? They know that if *THEY* don't chase the refi & get 75 cents on the dollar, somebody else will chase it and they'll get 0 cents on the dollar. IOW: portfolio retention.

The OP fundamentally misunderstands how banks make money on loan originations.

First, they made money the first time they originated this consumer's loan.

Then they made money on servicing this consumer's first loan.

Then they'll make monety on originating this consumer's second loan.

Then they'll make money on servicingt this consumer's second loan.

It's the INVESTOR back on Wall Street who earns less YIELD on the second loan--a completely different beast--not that Wells makes less money. Wells doesn't make less money. Wells makes more money.

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Author: CCinOC Big funky green star, 20000 posts Top Recommended Fools Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 124837 of 127777
Subject: Re: Mortgage Issue Date: 2/22/2013 8:48 PM
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No Cost refinance - closing costs are rolled into the loan, no cash needed from borrower. Really not a no cost, more accurately a no cash.

No Cost refinance - using Lender Credit to pay closing costs. If current market rate is 3.5%, you accept a higher rate, say 3.625%, and the bank provides a lender credit to pay closing costs. Not really a no cost, the cost is accepting a higher than market rate. However, a great tool to use, as there is no cash from borrower and no costs rolled into the loan.


If the Consumer Finance Protection Bureau wants to do its job correctly, they'll ban phrases like "no cost refinance" as being, at the very least, confusing. It's actually "no UPFRONT cost refinance." Of course there's a cost in there somewhere, as described by crackdclaw.

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Author: SABOB Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 124841 of 127777
Subject: Re: Mortgage Issue Date: 2/23/2013 10:59 PM
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Appreciate all of the interesting information even if some of it is conflicting.

Firstly, I do understand how banks make money through origination.

Secondly, this is, indeed, the "Three Step Refinancing System." The new interest rate is 3.625% versus the current 4.875%, resulting in a P&I decrease of $245.61. I understand the bank may get the $ at 3.5% and profit in that way.

The new loan would be 360 months (I mentioned 25 years only in context of about what is left on current which would actually be 26 years; LTV is 93%). While I see the benefit to WFB of the longer time, I'm not sure it matters since I won't be alive then and do not care at all about paying off the mortgage. There is insurance available to do that if I die before my spouse and she chooses that alternative. We also have perfect credit and guaranteed sufficient income through our lifetimes.

So, if I view this as simply as rent payment with certain tax advantages, what am I missing in terms of reducing outgo by $245.00 per month?

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Author: aj485 Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 124842 of 127777
Subject: Re: Mortgage Issue Date: 2/24/2013 1:08 AM
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The new loan would be 360 months (I mentioned 25 years only in context of about what is left on current which would actually be 26 years; LTV is 93%).

On high LTV loans, you can be required to escrow. If you aren't currently escrowing, and you will have to on the new loan, are you okay with that?

So, if I view this as simply as rent payment with certain tax advantages, what am I missing in terms of reducing outgo by $245.00 per month?

The extra 61¢? If the length of the loan and the interest rate are the only things that are changing, then I don't see why you wouldn't take advantage of this.

AJ

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Author: CCinOC Big funky green star, 20000 posts Top Recommended Fools Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 124843 of 127777
Subject: Re: Mortgage Issue Date: 2/24/2013 10:45 AM
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Secondly, this is, indeed, the "Three Step Refinancing System." The new interest rate is 3.625% versus the current 4.875%, resulting in a P&I decrease of $245.61. I understand the bank may get the $ at 3.5% and profit in that way.

No, that's typically not the way it works. The BANK doesn't make money on the YIELD (interest rate). The INVESTOR makes money on the yield. The bank makes money on buying a sack of money at X and re-selling it at Y. That's call loan origination.

Here's an article that 'splains--keeping in mind that very few banks own the loans they originated.

http://homeguides.sfgate.com/banks-make-money-fixed-rate-mor...

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