March 23, 2002

MORTGAGE REFINANCING ALONG WITH THE CROWD

I came late to the mortgage refinancing party, but I'm glad I went. With a 6.75 percent interest rate on my condominium loan instead of 8 percent, I can absorb increases in property taxes and homeowners' dues, take out some cash to pay down higher-cost debt and fund IRA contributions, and still pay about the same amount each month.

No wonder there's been a boom in refinancing. In fact, I put it on my to-do list late last summer, when I'd been living in my new place about a year, but somehow it didn't get done and I'd been kicking myself because I missed the low point in mortgage rates toward the end of last year. Maybe I'll have missed the low point this time too, we'll see about that, but I could equally well miss out by waiting.

I started my search with a mortgage broker, Altus Financial in Englewood, that advertises in the Rocky Mountain News -- note product-placement plug for employer's business! -- but I stuck with that choice because I liked their informative Web site, and, after I'd sent in a preliminary application on line, because I was satisfied with the performance of the loan officer, Rick Ruby, who called me back.

After the loan closing Wednesday, I sat down with Ruby and Ferren Rajput, who started Altus a year ago and is its president and CEO, to talk about the process.

What does he say, I asked Rajput, when someone wants to know why a mortgage broker should be used instead of going direct to a lender?

For one thing, the broker can tap into the wholesale market, he said. But also because the broker has access to all lenders, he said, versus the specific products of one lender. There are hundreds of mortgage variations, but no one company offers all of them.

For example, he said, if you're a borrower who would qualify for low rates because your loan is low risk, but you happen to go to a lender who specializes in high-risk loans, you may be stuck paying more than you need to.

``If someone offers you an interest rate without knowing your financial status, beware!'' he said.

The broker works for you; the lender doesn't.

There are several third parties in a refinancing, in addition to the broker. The title company draws up the papers and checks out the figures. We discovered, for example, that the company servicing my current loan, and therefore responsible for paying the property taxes, didn't know that my parking space had a separate deed, and therefore it wouldn't have paid the taxes due on the parking space.

Then there's the underwriter, who decides whether to make the loan, and on what terms. After the loan is closed, it will likely be sold to another company that bundles together a lot of different mortgages and sells them like a security, and perhaps sells separately the job of servicing the loan, that is collecting the payments and paying the investors who ultimately put up the money.

It's all extremely complicated, and Karl Marx would have hated it. Since he was wrong about virtually everything economic, perhaps that is why it works so smoothly.

On average, Rajput said, people stay in a property six or seven years, and refinance in even less time. So he believes the best deal for most borrowers is a blend of fixed-rate and adjustable mortgage, which has a lower rate guaranteed at first, but is adjustable after that. I understand the argument, but I'm 62, and I don't want to be fussing with refinancing five years from now, when I expect rates will be higher. So I went for plain vanilla 30-year fixed, but I appreciate having the options clearly explained. I'm quite risk-tolerant when it comes to investing, because my father started teaching me about that when I was 6 years old, but I prefer to be risk-averse when it comes to where I live.

Rajput also explained why I am required to buy title insurance, which accounted for several hundred dollars of my refinancing costs, even though I live in a brand-new building and nothing has changed since the last time I had to buy title insurance 20 months ago. It's really lien insurance; the lender wants to be certain any claims against the property are paid off before the loan closes. For instance, if nobody had noticed my unpaid garage-space taxes for a year or so, Denver would have put a lien on the property. It's very easy to put liens on property, Rajput said, so it has to get checked every time. Well, OK. It still seems expensive.

All in all, a pleasant and informative experience, and I look forward to picking up my check on Monday.