Casting a Cold, Hard Glance at Loan Refinancing
Q: I purchased my house in 1989 and got a 10.5% interest rate on the loan. I would like to refinance it simply to get a lower interest rate. Is there some way for me to do this without going through the paper chase?
My financial position, job and credit rating are all unchanged from the time I got the original loan. My house has gone up in value, and most importantly, I do not want to increase the loan balance.
In fact, I am willing to pay all the costs of the new loan in cash.
Why can’t my original lender just give me a new loan without the hassle of a costly reappraisal, credit report, title insurance and all the other nonsense? --C.A.
A: Lenders view refinancings as entirely new loan transactions and subject them to the same degree of scrutiny as they would an original mortgage agreement. This is true whether you are an existing customer of the lender or a potentially new borrower.
Why should lenders treat someone they’ve known for years as though they just walked in off the street? There are two important reasons, lenders say.
The first is that most lenders do not hold on to the mortgage loans they make. Instead, they sell them into the secondary market to investors, such as the Federal National Mortgage Assn. (Fannie Mae) and the Federal Home Loan Mortgage Corp. (Freddie Mac). Once a loan is sold, the lender is powerless to change its terms. So, if you want to change your loan terms, you have to get an entirely new loan.
This sets up the second reason for lenders’ imposing their strict scrutiny on refinanced loans. In order to sell their loans on the secondary market, lenders have to offer their best assurances that the loans will be repaid. Lenders say they can’t simply accept your word that your credit is unblemished and your job is secure if they have to vouch for your credit worthiness to their investors.
“Refinancings are not as simple as borrowers would think,” says Tom Terneus, senior vice president for Home Savings of America, one of the nation’s largest mortgage lenders. “Just because a person says his situation hasn’t changed doesn’t mean that we shouldn’t verify that. We have to look at the risks we are taking.”
That said, Terneus admits that many lenders are willing, if asked, to make minor revisions in the terms of certain types of loans--changes that stop far short of a full refinancing.
For example, a lender might be willing to adjust the maximum rate of an adjustable rate mortgage or its annual adjustment amount without subjecting the loan to a refinancing. However, he acknowledged that most lenders do not advertise this and will only provide the service if asked by the customer.
Owner of Business Wants Unemployment
Q: A few months ago I started a home business in case I lost my job. Well, I was laid off. But now someone told me that I am not eligible to collect unemployment insurance because I am a business owner. My business is only in the start-up phase and I have no revenue. I desperately need unemployment insurance on which to live so I can use my savings to grow my business. What can I do? --M.L.
A: A laid-off worker’s eligibility for California unemployment insurance benefits depends on two key factors: your earnings while unemployed and your willingness to seek new employment.
According to the state Employment Development Department, an unemployed worker may earn up to $25 per week without loss of unemployment insurance benefits. Any earnings above that ceiling are deducted from the benefits. Although unemployed workers may have occasional jobs, they must also be “able, available and actively seeking” new employment to meet the state’s eligibility requirements.
Can you meet these criteria? If your new business is still not generating any income, you presumably meet the income requirement. Now the question is how much you want another job. State employment officials say unemployment insurance is not supposed to fund a worker’s new business venture, so you should be prepared to demonstrate a willingness to find new work.
How to Replace Bonds That Have Been Lost
Q: I lost some U.S. Savings Bond certificates that I had purchased. Is there anything I can do, or is my money lost forever? --W.R.
A: Your bonds can be replaced if you have enough information about the lost certificates to persuade the U.S. Treasury that you are the rightful owner of the misplaced or ruined documents.
If the bonds were in your possession when they were lost, you must file a PDF-1048, a “Lost Bond Claim” with the U.S. Treasury. If the bonds were purchased and lost in the mail before you received them, you must file a PDF-3062, or “Claim for Relief on Account of Loss, Theft or Destruction of U.S. Savings Bonds After Valid Issue but Prior to Receipt by Owner.”
Bondholders filing a PDF-1048 will be asked to supply the following: the bond’s issue date, serial number and denomination as well as the name and Social Security number of the bond holder. The amount of information you supply will determine how easy it will be for the Treasury Department to reissue your bond.
Both PDF forms are available at local banks. Taxpayers in the central and western United States may also obtain the forms by calling the Federal Reserve Bank of Kansas City at (800) 333-2919. The line is open Monday through Friday, 6 a.m. to 3 p.m. Pacific Standard Time.
There is a larger lesson here that could make a wonderful, yet easy New Year’s resolution for all bondholders: keep a detailed list of your bond holdings to ensure quick replacement in the event of loss.
