Need a Loan? Think Twice : Part 2

by FTC

(Page 2 of 2)

2. After Choosing a Lender

Negotiate. It never hurts to ask if the lender will lower the APR, take out a charge you don't want to pay, or remove a loan term that you don't like.

Ask the lender for a blank copy of the form(s) you will sign at closing. While they don't have to give you blank forms, most legitimate lenders will. Take the forms home and review them with someone you trust. Ask the lender about items you don't understand.

Ask the lender to give you copies of the actual documents that you'll be asked to sign as soon as possible. While a lender may not be required to give you all of the actual filled-in documents before closing, it doesn't hurt to ask.

Be sure you can afford the loan. Figure out whether your monthly income is enough to cover each monthly payment, in addition to your other monthly bills and expenses. If it isn't, you could lose your home - and your equity - through foreclosure or a forced sale.

If you are refinancing a first mortgage, ask about escrow services. Ask if the loan's monthly payment includes an escrow amount for property taxes and homeowner's insurance. If not, be sure to budget for those amounts, too.

3. At Closing

Before you sign anything, ask for an explanation of any dollar amount, term or condition that you don't understand.

Ask if any of the loan terms you were promised before closing have changed. Don't sign a loan agreement if the terms differ from what you understood them to be. For example, a lender should not promise a specific APR and then - without good reason - increase it at closing. If the terms are different, negotiate for what you were promised. If you can't get it, be prepared to walk away and take your business elsewhere.

Before leaving the lender, make sure you get a copy of the documents you signed. They contain important information about your rights and obligations.

Don't initial or sign anything saying you're buying voluntary credit insurance unless you really want to buy it.

4. After Closing

Having second thoughts about the loan? The Truth in Lending Act gives most home equity borrowers at least three business days after closing to cancel the deal. This is known as your right of "rescission." In some situations (ask your attorney), you may have up to three years to cancel. To rescind, you must notify the creditor in writing. Make sure you document your rescission. Send your letter by certified mail, and request a return receipt. That will allow you to document what the creditor received and when. Keep copies of your correspondence and any enclosures. After you rescind, the lender has 20 days to return the money or property you paid to anyone as part of the credit transaction and release any security interest in your home. Remember that you must then offer to return the creditor's money or property, which may mean getting a new loan from another lender.

High-Rate, High-Fee Loans

The Home Ownership and Equity Protection Act (HOEPA) may give you additional rights if your loan is a home equity loan, second mortgage or refinance secured by your principal residence and if:

The loan's APR exceeds by more than 8 percent the rate on a Treasury note of comparable maturity on a first mortgage, or the loan's APR exceeds by more than 10 percent the rate on a Treasury note of comparable maturity on a second mortgage.

The total fees and points at or before closing exceed $499 or 8 percent of the total loan amount, whichever is larger. (The $499 figure is for 2004 and is adjusted annually.) Credit insurance premiums written in connection with the loan count as fees for this purpose.

If HOEPA applies:

• A lender may not engage in a pattern or practice of lending based on home equity without regard to the borrower's ability to repay the loan.
• You must get certain disclosures from the lender at least three business days before closing.
• Your lender cannot make a direct payment to a home improvement contractor.
• Certain loan terms are illegal - such as most prepayment penalties and increased interest rates at default.
• In most situations, your loan cannot have a balloon payment due in less than five years.
• Due-on-demand clauses may not be used unless the consumer defaults.
• A lender that has made a HOEPA loan to a borrower generally may not refinance that loan into another HOEPA loan within the first year.
• Your lender may not call a one-time loan a line of credit.

A high-rate or high-fee loan might be right for you, but be aware that it has risks. It is an extremely expensive way to borrow money. You could lose your home if you can't make the payments.

Where to Complain

If you think your lender has violated the law, you may wish to contact the lender or loan servicer to register your concerns. At the same time, you may want to contact an attorney, your state Attorney General's office or banking regulatory agency, or the Federal Trade Commission.

About the Author

www.ftc.gov
The Federal Trade Commission (or FTC) is an independent agency of the United States government, established in 1914 by the Federal Trade Commission Act. Its principal mission is the promotion of consumer protection and the elimination and prevention of anticompetitive business practices.