One of the few nice things about the economy collapsing is that it is a great time to refinance debt. As it stands right now, I have a mortgage on my house. Neither is substantial, but market rates are nearly 2% lower than when I originally purchased. As such, it makes a lot of sense to look at refinancing.
I'll cover in greater details some of the choices that I made in this regard later (once the paperwork is signed). However, as it stands, I decided on a 22-year home installment loan (recorded as, but not financed like, a mortgage). Given my credit and a few other options, it would be at fixed rate of 4.99% with approximately $200-$300 in closing costs. This beats my %6.875 interest mortgage substantially. Excellent.
As a part of the Truth In Lending Act my prospective lender is required to send me a Good Faith Estimate as to what the costs are going to be. This includes things like the APR for the loan, the closing costs and a few other details. The goal of the Estimate was to give consumers a single sheet to compare between lenders (actually 3 pages of crap). This way consumers can shop around and find the best rates/terms for them. Not a bad idea. However, this sheet led to me being very ... stern with the finance person I was dealing with.
The Good Faith Estimate that I received in the mail included the following things:
An interest rate of 7.840%
$99 Settlement Fee.
A flood report (cheep)
A credit report (cheep)
Tax Mkt Appraisal ($30.75)
Eval Appraisal ($90.00)
Driveby Appraisal ($500.00)
Full Appraisal ($1,600.00)
Property Search ($144.00)
Plus a $245.00 fee for Homeowner's insurance and $1,400.00 for flood insurance. This bringing the total estimated settlement charges to $4236.29).
Wow! A lot more than $300.
What makes this even more outstanding is that this included the cost of 4 different appraisals, and flood insurance. Unless something strange comes up or they can't do it for some strange reason, there is no reason that I need 4 different property appraisals. I also don't need flood insurance - I'm not on a 125 year flood plain, and I'm actually at the top of a ridge - if my house substantially floods, something Really Bad has happened and I need an Ark.
Needless to say, I spent about 5 minutes chewing into the guy working at the bank. After he recovered and managed to get in a word or two, I found out what's going on. By law, they cannot charge higher fees than the Good Faith Estimate shows (I think they get 10% wiggle room, or $100, whichever is greater). This means that they have to list every fee which they might be required to charge as a part of the loan process, because they can't add on if something is discovered. For example, if they decide to go off of the tax appraisal evaluation, but that nowhere near reflects the value of the home, then they might need a different appraisal. Likewise for the flood insurance - if they don't list it, they can't ask for it later. Same with the interest rate. They hadn't done a credit check at that time, so they quoted me their worst rate. The result is that I have a piece of paper which is worse than worthless. I was *less* informed after I read it. If a different lender had decided to do a credit check and quick property evaluation first, they could have shaved at least a percentage and $2000 off of the GFE.
Now, my bank deserves some of the blame here for not doing better research before sending me the GFE, but at the same time, the fact that the government prohibits them from making any changes after-the-fact makes this completely useless.
I'm usually in favor of standard forms, disclosure and transparency. However, in this case, that is exactly the opposite of what we got.