For the past two years, $16-billion-asset Valley National Bancorp in Wayne, N.J., has touted its $499 home refinance program in New Jersey and Pennsylvania.
In radio and TV ads, chief executive Gerald H. Lipkin tells customers there no hidden fees or "catches" for refinancing a mortgage as large as $1 million in those two states. Valley National also offers $1,999 refinances for homeowners in the New York City area, on mortgages of up to $417,000.
But there is fine print. Depending on when their refinances close, some customers end up paying additional interest or taxes—and complaining about the extra costs.
Valley National provides all legally required disclosures of those additional costs in its radio, print and television ads, according to Al Engel, executive vice president of consumer loans at Valley National Bank. But some customers still complain.
"Regardless of how much disclosure we do, we always get a certain number of customers who say they thought it was only $499 and we have to explain that the taxes and interim interest are not part of bank closing costs," he said in an interview last week.
He says "the entire process from A to Z" to refinance a home loan is covered by the advertised flat fee. That includes all bank fees, settlement fees and title insurance, but not interest expenses, depending on when a loan closes, and the funding of escrow accounts for taxes and insurance.
Valley National says it has one of the cheapest home refinance programs on the East Coast, where it has 211 branches in 16 counties stretching from central New Jersey to Long Island. Engel says the bank's refinance customers save about $2,500 on average in the fees they pay.
(But many refinancings cost much less, particularly those covered by the government's expanded Home Affordable Refinance Program,
Valley National
In the first quarter, Valley processed nearly 4,000 refinance applications, on par with the fourth quarter. Mortgage originations rose 23.5% from a year earlier, to $2.5 billion.
Engel says current refinance volumes are "significant." That volume has helped buoy Valley National's mortgage business while the housing market struggles.
"Everybody who is doing mortgages is doing refis, because the purchase market is very thin," he says.
Engel cites two major issues as holding back a housing recovery: the backlog of foreclosed homes and the judicial foreclosure process. The "nasty legal process" has resulted in "a huge hangover of properties in foreclosure," he says, adding that the backlog is keeping potential homebuyers from wading into the market because they are waiting for prices to fall further.
Because New Jersey is a judicial state where foreclosures are resolved through the courts, a delinquent borrower typically has not paid their mortgage for 438 days before a foreclosure is initiated, according to Lender Processing Services Inc. A defaulted loan then remains in the foreclosure pipeline for an average of 968 days, LPS found.
"Because of this protracted dysfunctional legal process we have for clearing distressed properties we're still months away," from a housing rebound, Engels says.
New Jersey also has one of the highest mortgage delinquency rates in the nation, with 12.4% of all mortgages either 90 days delinquent or in the process of foreclosure, according to May data from the Mortgage Bankers
Association. At the end of the first quarter, there were more than 100,000 homes in New Jersey in some stage of the foreclosure process but not yet available for sale, according to the MBA.
"People are not buying because they see no reason to buy today if it's cheaper tomorrow, and they're scared," Engels says. "There's just a tremendous amount of fear because friends and neighbors have suffered income cuts and co-worker cubicles are empty so there's a lot of uncertainty."
The continuing refinancing wave, which is helping banks
More borrowers are moving to 15-year fixed-rate loans or customizing the terms of the loans, even if there is no change in their monthly payment, because they no longer want a 30-year commitment, Engels says.
"The majority of refinancings we're doing today are into a 15-year duration," says Engel. "A lot of people who got their first mortgage in 2000 don't want to go back to the beginning of the 30-lap rate. Psychologically if they've invested for seven years, they don't want to go to a 30-year commitment, so they will do 23 years."
About a quarter of Valley's total refinance volume is being generated from an $899 cash-out refinance product available only in New Jersey and Pennsylvania. Most banks abandoned those types of products after the financial crisis, when home prices dropped and left borrowers with little equity in their homes to take money out against.
Engel says that most Valley National customers do not take out cash either, and end up using its "cash-out refis" to roll an existing second mortgage into their first mortgage.
"People are far more reluctant today to add debt to their home and they're much more interested in paying that down," Engel says. "Prior to 2006, financing a Disneyland vacation was something a lot of people were opting to do, but their philosophy has changed."
