NY Loophole Saves Borrowers Money on Refis

In New York State, there is an alternative method that allows consumers to save money on their mortgage tax and title charges when they refinance their loans.

According to Scott Kapchan of International Title Agency here, this tool is known as a Consolidation Extension Modification Agreement. The CEMA is the document that allows the borrower to take advantage of this legal loophole in New York State.

The industry has experienced such a tailspin, according to Mr. Kapchan, that before the aforementioned innovation, New York borrowers had to expend so much money in closing costs, that it almost didn't pay to refinance at all, especially if they just did it in recent years.

By using a CEMA, the customer pays a tax the difference between the existing mortgage and the new mortgage and not the tax on the entire loan. This is beneficial because the borrower doesn't have to pay mortgage tax all over again on the amount financed previously, Mr. Kapchan said.

On the other hand, in a traditional refinance, the original mortgage note is cancelled and the lien is released. This subjects the new mortgage to the full tax burden.

"What is interesting is that most people are not even cashing out which would result in no mortgage tax at all, with the exception of fees that the old bank and the title company may charge," he said.

In years past CEMAs have been a standard practice in the arena of conforming lenders such as Chase, Citibank and Wells Fargo. Subprime lenders, he said, would not participate.

But now that the servicing rights from a lot of defunct firms have been picked up by CitiFinancial, Chase Home Finance and American Servicing Co. (a division of Wells Fargo Funding), it should be a more common practice, he said.

Still there are some that are reluctant to do a CEMA, including some banks, which will only do a CEMA if the loan is refinanced with them. "This is not fair to the borrower because it puts them in a position to refinance with them where they would pay thousands in mortgage tax," he said.

With the agencies and the Federal Housing Administration revising guidelines to make it easier to refi, it will give tens of thousands of New York homeowners the opportunity to refinance adjustable, balloon and high rate second mortgages.

Mr. Kapchan said, "One of the main reasons that mortgage loan officers are reluctant do get involved in the CEMA process is that they are under the impression it takes too much time, it is difficult and the fear that they may lose the potential borrower. However, that may have been the case years ago." (c) 2008 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com/ http://www.sourcemedia.com/