Issues with refinancing

If the government really wants to help homeowners and the economy, it should make refinancing easier and the rates lower. The banks are paying the lowest rates in over 50 years, but this is not being passed down to consumers. In instances where the banks are providing a competitive rate, the fees they are charging to get that rate and to refinance take the appeal out of refinancing. As part of our process improvement initiative for the government, we are going to provide recommendations on how to improve the mortgage refinancing process so that homeowners would see an immediate benefit, which would help with the economic recovery.

Current Process

Refinancing is almost identical to a new mortgage, home purchase process:

Complete application

Pay application fee

Pay rate lock-in fee

Perform appraisal

Perform closing

Once application is completed, process can take anywhere from 2 weeks to 60 days.

Average costs (for a $250,000 mortgage refinance on a home valued at $400,000):

Title Insurance            1,280
Courier/Messenger Fees        35
Processing Fee            550
Application Fee            750
Recording Fees            70
Settlement / Closing Fee        387
Closing Service Letter            35
Tax Service Fee            84
Loan Discount Points            3125
Total Closing Fees:            6316

Pre-Paid and Escrow fees

Hazard Insurance Premium        625
Per diem interest for 17 days        538
Hazard Insurance Reserves        104
Real Estate Tax Reserves        1000

TOTAL CASH NEEDED AT CLOSING     $8,584

These are actual rates taken from Chase website. Depending on bank, these costs may be higher or lower. The discounts points can be eliminated, but you will have to pay a higher interest rate.

Aside from Transfer fees and taxes, these closing fees are actually higher for a refinance than for an original home purchase, when both were compared on the Chase site.

Mortgage insurance (approx $80) will also be added if the equity is less than 20%.

Keep in mind; these fees are for someone with outstanding credit score and 37% equity. Most people will actually pay higher fees and rates, or be turned down flat. Complications that will delay the process, increase mortgage rate and fees or result in denial include:

    Home value decreased, resulting in reduced equity

    Decreased credit score, regardless of reason

    Reduced income

 

Proposed Process:

Complete application

Pay small application and processing fee ($100 or less)

Rate adjusted to government mandated rate. Number of years left on mortgage remains.

Once application is completed, process should not take any longer than 2 weeks.

 

Benefits:

Monthly expenses reduced enough for consumers to have an impact. Consumers will have additional cash that can be applied towards purchases which would help to stimulate the economy.

Fewer Foreclosures: The value of housing would stop declining. Less people would be left homeless.

Toxic assets would be valued properly

Most investors will know the value of their mortgage backed investments.

 

Disadvantages:

Banks would not make as much money on refinancing mortgages.

Some investors would get a lower rate of return on their mortgage backed investment.

 

Next steps:

Since the banks have been unwilling to simplify this process on their own, the government should stop providing any additional bailout money to the banks and instead provide money to Fannie and Freddie to refinance mortgages using this process.

Any banks that fail and are taken over by the government would automatically convert to this process and begin refinancing mortgages in this fashion.

Banks that ultimately do get more government funding would have to perform refinancing using this method as a condition of the funding.

STOP!!! No More Credit!

Please stop trying to force the banks to extend more credit. That is not the problem. We owe too much already and the last thing we need is more credit. What we need is:

• To be able to buy groceries and gas without having to use credit
  

   

• To be able to fix the car without using a credit card
  

   

• To be able to fix the leaking roof on the house without taking out a loan
  

   

• To be able to send the kids to school without taking out a loan
  

   

• To be able to pay off what we owe.
  

   

• To be able to put money in the bank for a rainy day
  

So please stop trying to get us more credit. That is the last thing we need.

Distribution of wealth (or simply Greed)

A lot is being said regarding Obama’s plan to distribute wealth.  It’s not fair to the rich is the biggest complaint. Some politicians and the news media are making sure everyone hears these complaints.  The main one being that it is not fair to take money from the rich to give to the middleclass.

No one complained when the government cut taxes for large corporations and the rich under the guise of helping to stimulate the economy; trickledown economics.

Unfortunately, as the money trickled down to the middleclass and poor, it gushed out faster than it was coming in as the cost of living leapt higher, and large corporations began cutting employee benefits.

The rich began to get richer and large corporation started making record profits. As the saying goes, give them an inch…, large corporations and the rich got greedier.

To satisfy their greed, they started taking from the middleclass. What they allowed to trickle down to these groups, they took back many times over.

The list below contains some of the major ways that large corporations began taking money from the middleclass to give to themselves and to their rich stockholders. The changes were slow and subtle at first, but became more frequent with larger effects.

·         Profit sharing has virtually disappeared at almost all large corporations. Employees no longer had a share in their company’s success. If the company did good, rich stock holders and senior executives did well, getting dividends and outrageous amounts of stock, stock options and cash bonuses.  If it did badly, the people at the bottom were let go. This resulted in a 5 – 10 percent reduction of middleclass value

Other employee benefits began to disappear:

·         Sick time that employees never used and were able to bank disappeared. Don’t use it by the end of the year and it disappears, use it and you’ll get a poor performance rating, or worse. This saved large corporations millions of dollars at the expense of sick workers and the government.

·         401K company contributions became very restrictive or disappeared. These were changed from contributions that the company gave to everyone, to a matching contribution for the least paid employees, to a smaller contribution for the least paid. The loss in middleclass value is 3 – 10 percent per year.

·         Pension plans first got smaller then disappeared altogether. These were replaced by 401K plans that were much cheaper for the companies. For many, the company made a contribution only if you made one first. The loss in middleclass value is 5 – 15 percent per year, and higher the closer the employee gets to retirement age.

·         Medical and dental plan payroll payments from workers went up as the company contribution went down. Employee co-payments also went up having a dramatic effect on middleclass value. The loss in middleclass value starts at 10 percent and keeps increasing the more kids the employees have and the more doctor visits they make.

The reduction in middleclass employee value didn’t stop with these benefit reductions. Large corporations, now making record profits wanted more.

Some large corporations moved their corporate headquarters to other countries to avoid paying any income taxes.  The middleclass made up the shortfall in the form of increased fees for government services, increasing social security and Medicare payroll payments, increasing state, real estate and school taxes…

Manufacturing in the US was replaced by inferior products made overseas.

Jobs in the US began to disappear to be replaced by low priced workers overseas.

Banking fees skyrocketed hitting the middleclass, who kept going below the minimum, the most.

Products became more expensive as their quality went down.

Food products became more expensive, either with direct price increases or indirectly, less product at the same price.

These corporate actions resulted in the replacement of trickle down with the flood up.  Large corporations, their senior executives, board members and large stock holders all got richer as the middleclass had to start borrowing more. Money was being taken at an accelerating rate from the middleclass and going to the rich and super rich. Any money that trickled down was trickling down overseas, where these large corporations were expanding and the rich were investing.

There were no politicians or news media outlets screaming at the loss to the middleclass.  Politicians in fact had to change some of the middleclass protection laws to allow much of this to happen. President Bush changed the pension laws that allowed companies to eliminate them altogether. He also changed the bankruptcy laws so that they couldn’t wipe out their debt, and had to keep paying credit card and student loan debt. Credit card debt and student loans, which carry higher interest rates than mortgages, ensured that the middleclass would be indentured servants for life.

Why was no one complaining when the money kept flowing from the middleclass to the rich? The rich were actually getting praise for amassing this wealth as the middleclass were ridiculed for amassing so much debt. This redistribution of wealth from the middleclass to the rich went unabated until the middleclass could borrow no more and as a result, were now the poor.

The flow up has been stopped for now, because the middleclass cannot borrow any more money to give to the rich. Unless this is reversed and we have a flow down and not a trickle down, history will repeat itself as it has done time and again every time the rich take everything from masses, and leave them without even a promise for tomorrow.

Why don’t any of these same people complaining about Obama’s plan to help the middleclass, question why the middleclass have no money and need to use credit to pay for gas and groceries? The ponzi scheme that Madoff pulled off is nothing compared to what large corporations and the rich have done to the middleclass and to the entire country. How long can you keep making the value of your workers paycheck lower and lower while lending them money to make up the difference? The middleclass are worse off now than at any other time in US history and will owe even more when they reach old age and can no longer work (retirement is out of the question for most middleclass).