For Aziz Rastegar, refinancing fever has turned into a headache. The 50-year-old Santa Monica business consultant was elated when he applied in February to refinance his home mortgage down to a 9.5% fixed rate from his current 13%.
But because of various delays, and what he claims was his lender's failure to tell him when his loan was approved, Rastegar must now accept a 10.5% rate--if he chooses to go ahead with the refinancing at all. "I'm going to wait for the rate to come back down instead," he said, frustrated.
Recent sharp rises in mortgage rates, combined with major delays in getting mortgages approved and closed, have turned the excitement of seeing the first single-digit mortgage rates in nearly eight years into frustration, confusion and anger for many consumers.
Consumers applying for new mortgages or refinancings are complaining about being helpless to do anything about the rate increases as some loans have remained in escrow as long as five months. Consumers are also complaining about higher fees, not being told of the status of their loan applications and not being able to lock in the lower rates that were in effect when they applied.
For the Record
Los Angeles Times Saturday June 28, 1986 Home Edition Part 1 Page 2 Column 1 National Desk 2 inches; 36 words Type of Material: Correction
An article in The Times on Thursday said incorrectly that Imperial Savings may be sued by a customer unhappy about an increase in the interest rate being offered to her on a mortgage loan to refinance her home. The reference should have been to Columbia Savings.
Other consumers are canceling their mortgage applications outright, mortgage bankers and some other lenders report. The cancellations, while affecting the purchases of some homes, have particularly hit refinancings, which are taking longer to approve and close than new loans--often because lenders place a lower priority on them.
Homeowners often are canceling refinancing plans because the new higher rates make the savings from refinancing no longer enough to offset origination fees, appraisal fees and other costs of refinancing, lenders said. Also, with the new higher rates, some prospective homeowners no longer qualify for loans.
"For each half-percentage-point rise in mortgage rates, there is a dramatic change in the numbers of people able to qualify," said Angelo Mozilo, president of Countrywide Funding, a nationwide mortgage banking firm based in Pasadena. "The spike in rates really creates a hardship."
The California Department of Savings and Loan, which reports a sharp increase in consumer complaints to its office concerning loan processing delays and other problems, is investigating one or two unidentified lenders for possible fraud involving allegations that they have misled consumers about interest rates or used bait-and-switch tactics, William D. Davis, special assistant to the state S&L commissioner, said.
"When demand for loans and refinancings far outstrips supply, as is the case now, there are going to be (lenders) who want to take advantage of it," Davis said. He said his office has received 173 consumer complaints about these problems so far this month, up from 10 in a normal month.
The state Department of Real Estate, which regulates mortgage brokers and mortgage bankers, reports a slight increase in consumer complaints and is investigating a number of cases, Commissioner James D. Edmonds said.
The combination of agonizingly slow approvals and sharply rising interest rates "is a disaster," said Jack Grigsby, president of the residential mortgage arm of Coldwell Banker, a real estate firm headquartered in Los Angeles. The company is one of those reporting a higher rate of mortgage application cancellations.
"People have been crying, yelling, screaming, having fits, not understanding, asking what I can do to save them," Grigsby said. "People are going through a traumatic experience right now."
"I am frustrated with watching interest rates go up and not being able to do anything," said a 39-year-old Los Angeles accounting systems consultant who put in a refinancing application more than 11 weeks ago when the rate was 9.75%. He is still waiting for approval, but the rate is now 10.75%. "I feel like they have me over a barrel."
The problem has also taken its toll on the lending institutions. They complain about being unable to add qualified personnel fast enough to handle the tremendous increase in their workload. They say the delays are not their fault and are due, instead, to delays in getting appraisals, credit reports and other requirements.
Some lenders have even taken steps to discourage new mortgage business. American Savings and Columbia Savings, for example, are among several lenders that have stopped taking applications for refinancings from homeowners who obtained their original mortgages from other lenders.
"We have more than enough business," said Layna Browdy, spokeswoman for American Savings, which, as of June 12, quit accepting refinancing applications from homeowners with mortgages issued by other lenders.