Behind the Meltdown

[rowyn]

A couple of years ago, I posted a rant about Fanny Mae & Freddie Mac's involvement in the economic trainwreck still unfolding today. (Summary: RARGH ALL THEIR FAULT WHY DIDN"T ANYONE STOP THEM?!?)

jurann left a comment on my post last week that reminded me of this, and reminded me that I've never tried to organize all of my thoughts on What Went Wrong.

Comments

[rowyn]

You will get a huge pile of paperwork to sign, most of which is harmless (99% of loan documentation is "this is what happens if the borrower doesn't pay us back"). There are only two things that you really want to look at:

* The promissory note: this specifies all the terms that matter to you: interest rate (and when and whether it changes), maturity date, loan amount, payment date, late fees, and amortization. All of that should be on one or two pages on the note; some of it will be in a nice little summary block. You should check all of that and make sure it's right. Ooh, and watch for any weird clauses, like an early repayment penalty; that should also be in the note if it exists.
* The HUD: This is a two page document that summarizes all of the fees and costs involved. Check this too and make sure it's right.

Any decent bank or mortgage broker should be happy to fix the documents if there's a problem; my experience is that problems are the result of sloppiness and not scammers like the sleazebags Shockwave dealt with.

Looking over the rest of the documentation is a good idea too, but as I said, none of the rest matters unless you plan on not repaying the loan.

[tuftears]

Thanks for the heads-up!

It's a 15-year fixed rate loan, 3.125%, so if it suddenly turns into an ARM or something, then There Will Be Gnawing. };)

[rowyn]

3.125%? WHOA. I've been thinking it wasn't worth refinancing my house because I only have six or so years left and the rate was, I *thought*, already low at 5.375. But 3.125? Sweet!

[tuftears]

I dunno if it'll be worth it if you only have six years left - you'd have to figure remaining amount you'll be paying as interest, versus the amount you'd be paying on the refinanced loan! At the end of that, it might not be worth the time and trouble.

My brother pointed out also that one reason I have a lower rate is because I pay a bit more up front with closing fees, rather than having the closing fees be rolled into the loan.

QE2 may make my move a bit foolhardy, thusly, since interest rates are bound to get lower and it will take me about 6 years to earn off the savings on the lower rate, but meh. Bird in hand, birds in bush, et cetera.

[rowyn]

Hmm, I haven't heard of getting a better rate by paying for fees at closing. You do get a better rate by paying a higher fee total, though, definitely.

At 3.125%, there's not a lot of room to get *lower*. A loan needs to pay at least 2% just to pay the costs of servicing, really, even excluding the cost of funds.

[tuftears]

I'm sure they'll manage it just so I can slap myself on the forehead and go "D'oh!" >_>

[rowyn]

One of my friends found a site offering something like 1.66% on a secured loan. O.o. I guess it's possible. Yeek.!

[tuftears]

Yeek!

A quick glance at mortgage rates comparison shows lowest still seems to be 3.25% for 15 year fixed, but could be a different kind of loan.

[genkitty]

You can lower your interest by paying points up front (or getting the seller to pay them for you, still tax deductable!)

We locked in 4.375 earlier this week for 30 year fixed and pondered paying the points for lower but decided not to.

[rowyn]

*nods* I wasn't willing to pay points, either, although it's reasonable to do so if you expect to hold the mortgage for many years. You can get a lower rate on an adjustable interest rate (even if it's not a teaser), but ... there's really not that much room for rates to fall from here, and plenty of room to rise. The long-term forecast is that rates will remain at this level for the next couple of years, though.

... and I didn't think when I got a rate of 5.375% that there was much room for rates to fall either. So I guess the Fed could get even crazier and, say, implement a method for lowering rates below 0%. D: (This is conceivable but requires the kind of radical change in the currency system that I don't *think* it is politically doable. It involves either a currency tax or abolishing cash, basically.)