Your Mortgage : Update on Regulatory Issues and a Scam : Financing: Home-equity loan caps, realtors’ loan service fees resolved. Also, some guidelines given to avoid loan-service fraud.
Over the past few months, we’ve written about a variety of issues that concern you and your mortgage. Here’s an update on two regulatory matters that we’ve talked about before, and a follow-up on a real estate scam that’s spreading across the nation.
The first regulatory matter involves home-equity loans, those popular accounts that let you tap the built-up appreciation in your house simply by using a credit card or special checks.
Many financial institutions that make these loans have long been criticized by some consumer groups, who say lenders don’t do a good job when it comes to explaining how the loans work.
The most recent flap involves “rate caps” and a lender’s ability to cut off a homeowner’s credit line when the cap is reached.
For example, say you take out a typical adjustable-rate credit line with an initial 10% rate.
The loan papers state that there’s a five-point limit, or “cap,” on how high the rate can go--meaning your loan rate can never rise above 15%, even if inflation skyrockets in the future.
What the loan papers often don’t tell you, however, is that the lender may have the power to cut off your credit line if the 15% ceiling is ever reached.
“You might have paid hundreds or even thousands of dollars to set the line up, but you wouldn’t be able to borrow a nickel until rates went down again,” said Michelle Meier of Consumers Union, an advocacy group that says these “cut-off clauses” are unfair.
The Federal Reserve Board, which governs the activities of banks, recently issued a ruling concerning Consumers Union’s complaints--and the advocacy group isn’t happy.
The Fed’s new ruling allows lenders to retain their ability to cut off cash advances when the equity line’s rate cap is reached.
However, beginning late next year, all lenders will have to state in their equity-line documents that they have the option to cut off the homeowner’s credit line if the rate cap is reached.
Consumers Union is appealing a court ruling that essentially upholds the Federal Reserve Board’s decision.
In the meantime, Meier said, “The banks have won a battle at the expense of consumers.”
The second recent regulatory ruling that can affect your pocketbook concerns fees that realtors earn when they use computerized loan systems, which can be found in hundreds of real estate offices across the nation.
The systems have been touted as the “ultimate in one-stop real estate shopping”: After you have agreed to purchase a home, you simply go back to the realtor’s office, the agent turns on the computer and up pop a variety of loans offered by one or more lenders who have put their loan information into the computer’s database.
Although these computerized “loan networks” can be convenient, they have drawn fire from some bankers and mortgage brokers who don’t have their loans on each system’s database.
These lenders say that consumers don’t always understand that the loans offered via computer represent a mere fraction of the loans that are currently available: A borrower might be able to get a much better rate from a lender whose loan isn’t on the database.
In addition, many bankers complain that the fees that some realtors charge borrowers to use the computerized systems jack up the cost of buying a home.
It took nearly six years of debate and study, but the U.S. Department of Housing and Urban Development last month finally ruled that it’s all right for realtors to charge consumers for access to the systems.
The ruling “is a definite step in line with the way the industry is headed,” said Norm Flynn, president of the National Assn. of Realtors.
“The real estate business, like everything else, is becoming more technology-oriented. These systems can be a great service to today’s home buyers and save them a lot of time.”
Although the ruling was praised by realtors who operate the systems, it wasn’t a total victory for sales agents--nor a total loss for would-be borrowers.
Although realtors can continue collecting fees from borrowers, HUD said that realty firms must tell the borrower that they’ll be charged for the computer service.
In addition, HUD hinted that it would cap the fees realtors can charge for their loan services when it issues its final rules next year. A spokesman for the agency said the fee would likely be limited to $200 or $300.
Ironically, a cap--which government officials hope will protect consumers--could wind up hurting borrowers in the long run. Some experts say lenders may raise their rates in order to buy their way into the realtors’ systems.
About two months ago, we reported that loan-servicing scams were spreading across the country. But the problem seems to be getting worse, despite a growing number of stories about the rip-off schemes and warnings from several lending and consumer groups.
“It’s a serious problem that’s occurring around the country,” said Warren Lasko, executive vice president of the Mortgage Bankers Assn. of America.
The most recent cases have been reported in Virginia and North Carolina. Previous reports found problems in California, Colorado and Washington, D.C.
The typical loan-servicing scam works like this:
You get an official-looking letter from a company that says it has recently purchased your loan from the original lender, or that it is taking over the duties of processing your monthly payments.
The letter says you should begin sending your payments to the new company immediately. It might even be accompanied by a loan payment book.
If it is indeed a bogus company and you start sending it checks, you might be out hundreds or even thousands of dollars before you realize that you have been duped.
You’ll also have to make up the back payments to your rightful lender and it may put black marks on your credit record that will be hard to remove.
“It’s a ‘lose-lose’ situation for the homeowner,” Lasko sums up.
To reduce the chance that you’ll fall victim to one of these scams, the MBA suggests that you follow these guidelines if you get a notice that your loan is being transferred:
* Make sure you get a letter from the original lender stating that the loan-servicing duties are being assigned to another institution. You should receive this “goodby letter” at least 15 days before the next payment is due.
* The letter should state the name of the new servicing company, its address and the name and phone number of a contact person or department. It should also specify where and when the next payment should be sent.
* The new servicer should send a “welcome letter” stating the same information. If you get a welcome letter but no notice from the original lender that your loan is being transferred, contact the original lender to verify it.
* Make sure that the original lender and the new loan-servicer have your current address, and notify the new institution if your mailing address changes. This helps to assure that you’ll get any future correspondence in a timely manner.
If you want to know more about loan transfers, you can order “When Your Loan is Transferred to Another Lender--a Consumers Guide” from the Mortgage Bankers Assn. of America, Department 0021, Washington, D.C. 20073-0021. It costs $1.
AVERAGE RATES FOR RESIDENTIAL MORTGAGES Average rates for residential mortgages as of Oct. 5, 1990.
Survey Conventional Mortgages Adjustable Mortgages Area 15 Year 30 Year Composite 1 Year Composite National 9.86% 10.16% 10.03% 8.18% 8.46% California 10.09 10.41 10.26 8.43 8.36 Connecticut 9.93 10.20 10.09 8.26 8.50 Wash. D.C. 9.76 10.06 9.92 7.89 8.22 Florida 9.87 10.17 10.03 8.17 8.28 Mass. 9.91 10.24 10.09 8.33 8.64 New Jersey 9.85 10.15 10.02 8.05 8.51 N.Y. Metro 9.94 10.24 10.11 8.23 8.58 New York 10.04 10.35 10.22 8.37 8.87 N.Y. Co-ops 10.25 10.53 10.45 8.56 8.88 Pa. 9.62 9.95 9.80 7.88 7.98 Texas 9.64 9.96 9.81 8.20 8.31
SOURCE: HSH Associates, Butler, N.J.
