In November of 2010, interest rates for home mortgages were near historic lows. My wife and I both felt it would be a good time to refinance. At the time, most analysts felt that rates were beginning to rise. We wanted to lock in a rate as soon as possible, so we visited LendingTree.com and submitted our basic financial information.
We were inundated by calls and emails from lenders. After speaking with a few individuals who contacted us, we decided to move forward with WestStar Mortgage of Woodbridge, VA. Their terms were favorable, so it seemed like a good decision. Unfortunately, it was one we would ultimately come to regret.
We locked in our rate at 4.375% for a 30-year fixed-rate mortgage. The lock was for a 45 day period, which was longer than usual because of the holidays. At that point, WestStar performed a credit check. Our credit scores both came back in the 700s. WestStar then proceeded to request a reasonable amount of documentation from us for income verification purposes. Given everything that had happened over the last several years, this seemed reasonable. They also requested two previous years of tax returns for my business and profit-and-loss statement for the current year. This seemed somewhat less reasonable, considering the following:
I sent over the business records. Although 2009 had been a tough year for my business when compared to 2008, my profit-and-loss statement for 2010 showed that things had bounced back.
WestStar began to request more paperwork, including documentation of our investment holdings. I was more than pleased to provide them, because they accounted for over 40% of the loan amount. I figured this would make the loan a no-brainer.
During this time, interest rates were already rising. We didn't think we needed to worry. We had locked in our rate.
Despite our six-year record of never missing a payment on our current mortgage, our credit scores, and our relatively sizable investments relative to the amount of the mortgage for which we were applying, we were rejected on December 20, 2010.
We were told we were rejected due to declining income from 2008 to 2009. This seemed like a strange basis for rejection, given our investments and the fact that our 2010 records showed a positive turnaround. I found myself wondering if the loan rejection was really just an attempt by WestStar to back out of a issuing a loan at 4.375% when rates during the "lock" period had already risen to around 5%. This type of practice is called "lock failure" and it can happen when rates rise rapidly inside a short period of time and lenders are not adequately hedged. Unfortunately, it would be almost impossible to prove this happened without looking over WestStar's books.
My contact at WestStar referred me to an Executive Vice President with WestStar on the date we were first notified of our rejection. I contacted him, we spoke very briefly, and he asked me to call back the next day at 10:00. He assured me that he would go over the loan in detail.
Despite my having arranged a scheduled call, he never answered the phone. I left a message, which he never returned. I followed up with my contact, who assured me he would remind the EVP to contact us. We never heard back from the EVP. After another week, my contact sent me a message which seemed to imply the EVP wouldn't be getting in touch with me. It included the following: "Once you file your 2010 tax returns we can re-evaluate and hopefully the rates will be low enough for it to make sense for you [sic] refinance."
This only fuels my suspicion that the rising rates were the real reason WestStar rejected our application.
I won't be reapplying with WestStar.
The specifics of why I was rejected are likely unimportant to you. However, WestStar's poor communication practices alone are more than enough justification for me to recommend that others avoid using them.