My Experience Re-Fi’ing With a High LTV

I bought my place at Trace Lofts in September 2007. I know, I made a huge mistake buying at peak. I bought it with a 6.25% interest only 5 year adjustable rate mortgage through Countrywide (since at the time no one else would lend to me with a rental unit). With the low interest rates we were seeing in 2009 I tried to re-fi and it proved to be quite an ordeal. The short story is that at the beginning of this year I re-fi’d down to 5.25% with a 30-year fixed FHA loan through Wells Fargo brokered by Eastlake Mortgage. It wasn’t the product I wanted as I was hoping to re-fi at around 5% with a 5-year non-FHA loan but turns out I didn’t have any options.

At the beginning of 2009 there weren’t many options for people like me in the 95%+ LTV (loan-to-value) category.

Then I heard aboutObama’s re-fi program for those with up to 125% LTVs and got excited about that but unfortunately I didn’t qualify since my loan wasn’t owned by Fannie Mae or Freddie Mac.

Then towards August I checked in with a lender about re-fi’ing and there were options available if I was 95% LTV or better. But what was my place worth? I decided to take a chance on an appraisal even though I knew I had to be underwater. Worth the chance right? I figured it was since there had been some reasonably pricey (in terms of $/sq. ft.) sales at Trace North.

Now keep in mind the way appraisals worked has really changed. Nowadays the lender can’t pick the appraiser, they need to pick from a pool, etc. This is governed by the home valuation code of conduct.

Unfortunately the appraisal came back way low at $375,000! [pdf] (comp’d against: 2200, 19th Ave, Trace North) I didn’t necessarily disagree with their pick of comps but I disagreed with how they adjusted the square footage. Since our place is a large 1 bedroom they adjusted the square footage from the other comps at only $50/square foot. Ugh. We tried to argue with the appraiser but no dice.

That turned me off re-fi’ing for a bit but I eventually talked to the broker who originally did a number of the loans at Trace Lofts and since then had done some re-fi’s for folks. He reminded me that a FHA loan might be an option since FHA hadn’t yet adopted the HVCC guidelines. Meaning that the lender/broker could pick the appraiser. However, the drawback of FHA is that you have to pay a 1.75% mortgage premium upfront. However, looking at the amortization tables I’d break even in just under two years so I committed to another appraisal and this one came back at $475,000 [pdf] (comp’d against Olive 8, the Crawford and Brix). Now it took some time to get this all sorted out and as my re-fi was in underwriting the lender we were going to use for a 5 year ARM FHA stopped doing FHA spot approvals and Trace Lofts isn’t FHA approved (though Trace North is). This left us only one lender, Wells Fargo, who only had a 30 year option which meant a higher rate. I also opted into an even higher rate in order to have the broker pick up the closing costs which will make sense if I have this loan for under five years.

So I’m now some what happily re-fi’d. But it turns out that at 5.25% versus 6.25% interest-only, my monthly payment is the same. However, after a few years I should start digging into the mortgage balance whereas the interest-only option kept the mortgage balance the same for the life of the loan. Also an FHA loan is assumable so if rates shoot up and I decide to sell having a loan that a purchaser could assume at lower than market rates would be attractive.

I’m glad I stuck with it and re-fi’d. Though if I had been more persistent perhaps I could have gotten a better rate and different product but everything was moving so quickly in the mortgage industry. Definitely hard for a customer to keep up. If I didn’t work at Redfin it’d be a challenge sorting out conforming from non-confirming, FHA from non-FHA, HVCC, Fannie Mae vs Freddie Mac, and on and on.

Thanks to all the loan people I’ve worked with over the past year, Jamie at Countrywide, Redfin’s partner lenders Brian at Cobalt & Matt at Cornerstone and ultimately Mark at Eastlake Mortgage. And thanks to Lisa for writing Redfin’s real estate glossary, it was in editing her work that I learned the most about mortgages.

Live at Trace and haven’t re-fi’d but want to? FHA loans are now requiring appraisers under HVCC. However, Eastlake Mortgage has a two week extension during which they can pick the appraiser but you need to get your appraisal ordered by February 15th so you need to act fast.

About Matt

Matt , Urbnlivn's publisher, has a love for lofts, floating homes and mid-century moderns.

For years Matt resisted becoming a real estate agent preferring to be an executive in the startup world but he recently caved in the spring of 2014 and became an agent.

You can also find Matt on Twitter or skiing.

  • sfddsffds

    nice write up and congrats!

    things are really out of wack when two appraisals are 25% off

    and whats up with the picture of comparable sale #4 on the second appraisal?

  • http://www.ahousebythepark.com/ Mike D.

    Congrats on closing. I'm in a similar situation, condowise and ratewise, but I'm probably at just over 80% LTV so shouldn't be nearly as hard. The appraisal situation you mention seems, as best, sketchy and, at worst, fraudulent, however. It illustrates exactly why these new appraisal rules are in effect. The fact that a mortgage company can cherrypick an appraiser knowing they will come back with a price that is higher than other appraisers, means the appraisal (or all of the other appraisals, optimistically) is grossly inaccurate. Although the law is what allows this to happen, I personally blame the entire real estate appraisal process itself. In many cases, appraisals are a total crapshoot. “Drive by” appraisals??? Cmon. What if my house is completely destroyed on the inside? Or conversely, what if its walls are lined with platinum? The appraisers will often never know (and never care) because they just want to collect their fee and get onto the next job asap.

  • michel77

    Interesting write-up. So, from a market perspective and comps aside, which one do you feel is more accurate? Not to play the devil's advocate, however an appraisal coming back at $15k above “peak” pricing appears a little optimistic? Either way, nice job and congrats on the re-fi!!

  • http://twitter.com/mattgoyer mattgoyer

    I think fair market value is somewhere between the two. Clearly my place has not appreciated in the last two years :).

    I do think how far apart these two appraisals are point out the absurdity of the appraisal system. Both appraisers came to my place and saw it in person yet arrived at dramatically different valuations.

  • http://twitter.com/mattgoyer mattgoyer

    I think fair market value is somewhere between the two. Clearly my place has not appreciated in the last two years :).

    I do think how far apart these two appraisals are point out the absurdity of the appraisal system. Both appraisers came to my place and saw it in person yet arrived at dramatically different valuations.

  • rhondaporter

    Many lenders did not “cherry pick” appraisers. I worked with my appraiser because I trusted him…and if an appraisal came back low, I believed him. Now everything is second guessed. The issue of HVCC, which is referred to in the post was brought on my Washington Mutual using their appraisal management company.

    It's a mess.

    To add to it, AMCs (most owned by banks) are reaping it in by taking 40-60% on average of the appaisers fees simply for ordering the appraisal…perhaps working for half of their pay is why the appraiser is having to move fast to their next job.

  • KatherineRBrownton

    Here there are two scenarios for the situation. One, you only use credit cards like many other people. Two, wells fargo bank locations you do have cash, yet there are already people waiting in line to pay because old technology is slower.