Archive for May, 2009 —

Adventures in Refinancing

During the few months my house has been waiting for permits (which I should finally get this coming week! woohoo!), I’ve been exploring different refinancing options to take advantage of how low 30-year fixed mortgage rates are right now. The process has been anything but straightforward and it’s starting to get a bit infuriating.

I am currently holding a 5/1 ARM at 5.75% and a home equity line of credit indexed to prime-minus-0.25% with a floor of 4.22%. Since prime is currently 3.25%, the line is currently floored. The ARM is for the maximum amount allowed short of a jumbo.

The process began for me back in mid-February when I happened to notice Countrywide advertising 30-year fixed jumbos at 6%. I hadn’t seen jumbos below 7% since the sub-prime crisis began, so I got the ball rolling. Everything seemed great for the first few weeks and my appraisal came in at exactly what I paid for the house, so I thought I was home free. Then the trouble began. Countrywide underwriting began asking for all sorts of additional documents, which I ended up providing eventually because they said that was all they needed to close. Then, a whole two months into the process, they wanted me to go to my HR department and provide written compensation guarantees using language my HR department was not comfortable with (and neither was I, to be frank).

All this for someone who has perfect credit, a comfortable salary, plenty of equity in his property, and the ability to pay off the entire house tomorrow if necessary. At this point, I felt something strange was afoot at Countrywide underwriting, so I called up my current lender, Wells Fargo, to see what their best deal was.

My previous agent at Wells told me they didn’t have any great jumbos available, but that they could refinance my first mortgage into a 30-year fixed at 4.875% and keep my HELOC as is. Not bad at all. I spent the evening creating a spreadsheet comparing cash flows between the split option and the jumbo option and sent it to my Wells agent in advance of our meeting the next day.

To my surprise, my agent tried to forward my email and spreadsheet to a friend in his office with a snarky note attached to it. To his surprise, he accidentally hit “reply” instead of “forward” and it came to me. I called him immediately to cancel our meeting and our financial relationship.

Always remember the golden rule of e-mail: If you aren’t comfortable with the entire world seeing an e-mail you’re writing, then don’t write it. Or at least don’t be a jackass and send it directly to the person you’d least like to see it.

Anyway, I had nothing against Wells Fargo as an institution, so I called another agent in Seattle and got the ball rolling on the split option refi. Everything was hunky dory until the appraisal came through underneath what I paid for the house. I would understand this if I bought at the peak or if I didn’t get the place off-market for under even the tax assessed value, but something didn’t smell right. I looked at the appraisal and the person got some material things wrong, including square footage and using comps that weren’t even in my neighborhood!

So now it appears I have to dispute the appraisal.

Here’s what makes no sense at all to me though: Since the jumbo limit in my area has gone down about $60k, I am willingly paying $60k to decrease the size of this loan down to the new limit. Therefore, I am owing my bank less money. Therefore, even if the property was appraised at one dollar, the bank would be better off carrying my new loan than my old one, from a risk standpoint! There shouldn’t even be a loan approval process at all in this case!

What makes me even more mad is that I met one of my neighbors yesterday who was in the same situation with ING, and he said he spent literally 5 minutes on the phone with ING and did a “mortgage modification” into a 30-year fixed with no paperwork, no escrow, no appraisal, etc. Why I can’t do something like this with Wells, I have no idea.

Permits are coming this week, so having this issue outstanding for three months now is starting to really make me nervous.

Permits Issued!

Almost 5 months after applying for building and demolition permits, the City of Seattle finally granted me my documents last week. With barely any permit applications going through the City these days, one would think things would have gone quicker, but in reality, I feel like the lack of permit flow caused more city scrutiny in the end. The main issue that dragged things out was something I wrote about a little while ago: indemnification.

In short, since part of my property is in an “environmentally sensitive area” (i.e. near a cliff) the City insisted that I sign a covenant running with the land that did many things I felt were overreaching and unnecessary. I understand why the City’s standard procedure is to ask for this (and most people accept it as is) but it contained two particular things that my attorney, Patrick Moran, was thankfully able to negotiate out:

  • A clause stating that if anyone sued the City for anything relating to the issuance of my permits, I had to indemnify them and pay for all legal fees, judgements, etc.
  • A clause stating that this covenant ran with the land and if I ever sold the property, the new owners would also be burdened by it.

The first clause was reduced such that the indemnification only covers actual damages caused by construction. This means that if a neighbor decides to sue the City because they don’t like the look of my house, I’m not on the hook to defend anybody or pay anything. The second clause was modified such that the indemnification ends if and when the property is sold. This is key in preserving value, as I would flinch if I was buying a property which transferred such indemnification to me.

A lot more language was clarified as well, and I feel like the $1049.50 I owe my attorney in fees has been well worth it.

During these final stages of preparing for construction, I’ve also completed a few more tasks and spent a little more money:

  • We had the asbestos abated for $2,335.64 by Partners Construction, Inc.
  • Some additional structural engineering work from Swenson Say Faget was completed for $2,192.29.
  • Some additional geotech work was required by the City and performed by Icicle Creek Engineers for $600.
  • The additional City of Seattle fee to complete the permitting process was $3,450.75 (bringing the total permit fee to $8,911.50).
  • Printing fees of $172.91 for some additional drawing sets.

So with that, we’re almost all set to build. I’m still waiting for my refinance to close, but after that it’s all systems go. Unfortunately, the place that is going to deconstruct and recycle most of the existing house is a little booked up right now so we may be looking at July.

It’s also interesting to note that the official amount of investment it took to get to the point of breaking ground has been exactly $78,543.85.

Costs accrued during this stage:

Structural engineering services$2,192.00
Additional geotech work$600.00
Asbestos abatement$2,335.00
City of Seattle Demolition and Building Permits (Completion fee)$3,450.00
Legal fees to negotiate building permit$1,049.00