The Veridian Blog

A client of ours recently refinanced to a 5.20%, 30-year fixed loan three months ago and now wants to refinance again due to the recent drop in mortgage rates.  She has no prepayment penalties so will there be any problems refinancing again?

With some exceptions, there will be some issues with the broker agreements we have entered into with our wholesale lenders.  There was a time, long ago, when savvy brokers perpetually refinanced clients on a no-cost basis, thereby lowering their interest rates and earning a commission time after time.  This process was called "churning" and albeit totally legal, lenders eventually realized that the loan was no longer profitable after paying out multiple commissions.  As a result, their attorneys began to include language in their broker agreements requiring a seasoning period before the same broker could pay off a loan on the same borrower.  Depending on the lender, that seasoning period could last anywhere from 90 to 180 days from funding date to funding date, or be based on a minimum number of payments made. 

Does this mean that our client will be unable to refinance?  Not at all - NONE of our loans have any prepayment penalties, so they are free to refinance with ANYONE, at any time.  If the client refinances through us (we hope), then WE would be putting our commission on the line.  If we are in violation of a broker agreement, the lender can come after us for the previous commission we made on the first deal three months ago.  If the client refinances through a different broker, than we would also be technically liable for the commission earned on the first deal (the way most early payment provisions are written).  However, any client's actions are really out of our control so it would be very unlikely for the lender to seek repayment of the commission.

Some lenders will offer exceptions to the general broker seasoning requirements if the same borrower refinances with the same broker AND the same lender (they keep the loan).  Broker commission may be limited, but at least the client stays with the broker while being able to lower their rate or improve their terms.