Blown Mortgage

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With permission, I’ve done some number crunching on an actual deal that actually closed.  These borrowers were not risky, AAA+ borrowers, low LTV on  great house here in central Ohio.  Over the summer, they chose to refinance.  Since they were strong borrowers, the loan was clear to close before locking.  We chose to close their 15 year fixed loan at 6.375, which was a decent rate at the time.   Our price was 102.8 on a $270,000 loan.  We used our some of this to pay closing costs, and the rest was profit.

This means that the lender we used paid us $7,560 in real money to close this loan for the clients.   They had the original 6.375 loan for 138 days.  This means that ALL the interest that was collected was $6507.  They paid me to do this loan, and lost $1,053 for the privilege of having this loan for a while. 

Right now, I can offer these people a similar deal at 5.75.  This is paying 2.69% from one of my carriers, or another $7263.00.    The second I saw an opportunity to improve their situation (and make a good fee), I told them I can do a no closing costs deal for them at this price.  They are closing next week. 

I am paying all of their closing costs, ALL of them…on the new loan. I’m fronting for the appraisal.  I’ll still wind up with 1.5% after all costs and fees are paid, and we’re not increasing the loan amount.  There’s still good money for negligible work (60% LTV 819 credit score 14% back end ratios).  The first bank paid $1000, never made a profit on the loan and it was paid off because it benefited the customer.

The very best customers, the lowest risks, don’t stay with their banks long enough to make a return.  There’s no upside for a big Midwest bank to fund someone (in this case, the bank was Tom’s employer), because I took them away. I feel like I have an obligation to watch my customers portfolio, and that outweighs any obligation I may have to the Bank.

Now, there is nothing in our agreements that recapture any of our money past 120 days.  So, Bank A has lost money because of this "great" transaction. Bank "B" will lose money if the rates improve because I will have my eye on the ball and ensure that my clients are always in the best interest rate that makes sense.  Banks are–to me–fungible.  So, my question is what incentive do they have to stay in the game when they have massive downside, limited upside, and no relationship with their customers?

 Chris Johnson closes loans for Realtors in ten days or less at Tendayteam.com. 

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