B of A Imposes Heavy Fees on Refinance Bids : Real estate: In an effort to discourage ‘frivolous’ applications, the bank is requiring up to $3,250 in advance for a $200,000 loan.
Bank of America has responded to a crush of home mortgage refinancing requests by imposing hefty advance application fees that could have the effect of discouraging its borrowers from shopping around for the lowest interest rates.
A few other major banks also have taken steps to try to deal with the flood of refinancings--often called refis-- resulting from lower interest rates. But none of the fees are nearly as drastic as B of A’s, which can be up to $3,250 for a $200,000 loan.
B of A’s new charges were imposed quietly three weeks ago because of pressure from a flood of refinancing requests due to falling interest rates. Many potential borrowers shopped for better deals elsewhere even as B of A expended costly efforts processing their applications.
Under its new procedures, B of A--the state’s largest bank--requires refi applicants to pay an advance fee of 1.5% of the loan amount. That amounts to $1,500 for a $100,000 mortgage and $3,000 for a loan of $200,000. They also must pay a $250 appraisal fee. Both charges are in addition to the non-refundable $200 application fee that all mortgage borrowers pay.
The new fees are forfeited only if the borrower withdraws an application after approval and after the home is appraised. If a borrower is rejected, the fees are refunded. Otherwise, the money is credited toward closing costs, and customers get refunds for any advance payment that exceeds those costs.
Rick Beebe, a company spokesman, said the fees are meant to discourage frivolous applications. “It allows us to allocate resources to those seriously committed to getting loans from us.”
But some customers are upset about the new policy, which at the least gives the bank free use of the money (no interest is paid) for 30 days or more, depending on how long it takes B of A to approve the application.
“I never heard of lenders getting 1.5% upfront, especially for an established customer like me,” said Eduardo Abad of Orange, a long-time B of A customer who was considering refinancing his home loan last week. “I don’t think I should be treated like that. This is a very irresponsible policy.”
Abad, an accountant with offices in Artesia, also is concerned about what the new policy portends for customers after the bank’s pending merger is approved with the state’s second-largest bank, Security Pacific National Bank.
“If they’re so bold with regular customers now, what are they going to be like after the merger?” he said.
The policy has upset Abad enough that he is thinking about not dealing with B of A. “Now I’m really going to shop around,” he said.
B of A, however, said it was forced to impose the fees to reduce the workload created by the current refinancing frenzy. Processing applications is “a real investment of time” for the bank, Beebe said.
“It’s no surprise that we’re seeing an increasing number of people who, even after their refinancings are approved, decide not to go through with the loans,” Beebe said. “They have applied to several lenders looking for the best deal, or they’re waiting to get that last half (percentage) point out of the market.”
Typically, one-third of Bank of America’s home loans are refinancings, he said. But the amount of refis doubled in December and quadrupled in January, when they constituted nearly 90% of the bank’s loans, he said.
Since Bank of America added the new fees Jan. 24, refis have dropped to about two-thirds of the bank’s mortgage loans, Beebe said. The bank doesn’t release its monthly loan totals, but last year it said it originated $7.8 billion in home loans in California.
Other institutions have taken less drastic steps to deal with the large amount of refinancing requests.
First Interstate Bank was so swamped with refinancing requests that it halted all such lending for two weeks, said spokeswoman Cheryl Friedling. The bank resumed making refi loans this week, but now requires applicants to pay an upfront $375 processing fee, which is applied toward closing costs.
Wells Fargo Bank now requests an advance fee of $280 for mortgage refinancing applications. The bank used to require that same fee only after the loan was made, and those borrowers buying homes still pay that fee at closing, said spokeswoman Kathleen Shilkret.
The bank’s lending officers, she said, also believe that interest rates on loans at all institutions are rising in an effort to dampen the refi market.
At Security Pacific and at the nation’s two largest thrifts, Home Savings of America in Irwindale and Great Western Bank in Beverly Hills, customers pay the same fees regardless of whether they want mortgages to buy homes or to replace their current loans.
